Most retirees are uninformed when it comes to their options with reverse mortgages. Due to the lack of this information, many are simply unaware that they have such options to begin with. And many do not consider even tapping their equity.
According to the 26th Retirement Confidence Survey by the Employee Benefit Research Institute, just 21% of Americans are confident they will be able to comfortably retire.
Fewer than 48% of workers have even attempted to determine how much they need to save for retirement. And, 40% of workers basically guess at what they think they'll need someday to live a comfortable lifestyle once they leave the workforce.
One's home equity can play a strong role in retirement, especially if you are not as prepared as you would like to be. The average homeowner between the ages of 64 and 74 has about $150,000 in home equity. As compared to their other financial assets, which the Boston College Center for Retirement Research estimates at an average of $125,000.
An American College survey of over 1,000 respondents found that people between the ages of 55 and 75 have at least $100,000 in home equity, and over 56% of them never even considered tapping it to fuel their retirement.
Of those surveyed, just 14% considered a reverse mortgage. But 63% said they were comfortable exploring their option with using their home equity to fund retirement. Considering that 58% of those surveyed plan on living in their homes for 20 years or longer, a reverse mortgage for retirement is not that bad a game plan.
A reverse mortgage is a HECM loan that you can take out which is based upon your existing equity. It allows you to borrow against the equity in your home, with repayments that do not begin until after you have passed away. Applicants need to demonstrate that they have the financial ability to pay property taxes, home insurance and upkeep. But credit scores and income are not a requirement.
Reverse mortgages have multiple payout options with combinations also available. The three most common options include: lump sum payout, monthly payout and line of credit option. Some of these payment options can be combined. Borrowers are required to meet with a third-party financial advisor before taking out these home loans. You do need to be 62 or older to qualify and the home you are borrowing against has to be your primary residence.