Home equity reverse mortgage for retirees

Retirement means leaving the workforce, which is a welcome change for most seniors. However, it also means adjusting to paying for living expenses. On a limited retirement income, it’s best to preserve your cash and allow your investments to grow. So, where to begin?

Put your home equity to work in retirement
Depending on their financial planning for retirement, retirees can roll over all or part of their current home’s equity into a new home, invest the home’s equity elsewhere to provide supplemental income, and/or reduce their monthly living expenses while indulging in their long-awaited retirement lifestyle with a reverse mortgage.

Retirees pay no capital gains tax on $250,000 – $500,000
Most retirees are looking to downsize to a smaller, more manageable home, often in a warm and sunny climate. This new retirement lifestyle may require moving to a new area. Single retirees with a significant amount of equity in their current home can sell it without paying capital gains taxes on up to $250,000. Married couples filing jointly and purchasing a home more suited to their retirement needs can sell their home with no capital gains tax on up to $500,000.

Reverse mortgage: refinance to buy income-producing investments
Retirees who choose to stay in their current home have the option of refinancing the home with a reverse mortgage to avoid monthly loan payments (principal and interest) and use the home’s equity, now converted to cash, to invest in other vehicles such as annuities or T-Bills. These investments can be used to provide supplemental income for years to come or to purchase rental property that generates a steady income stream to help fund living expenses in retirement.

Reverse mortgage—no mortgage loan payments for life
Once retirees sell their home and find the retirement home of their dreams to buy, they can finance the new home’s purchase with a reverse mortgage and never make a monthly mortgage payment again, providing they or they or their spouse is 62 or older and living in the new home. With an FHA HECM loan, retirees put down approximately 60 percent of the purchase price.

For example, if one spouse is 62 years of age or older, you can buy a new or resale home for $250,000 with a down payment of $154,151 plus closing costs, and finance the purchase with an FHA HECM loan. Property taxes are still assessed and must be paid, as well as homeowners insurance, homeowners association dues, utilities and home maintenance costs for as long as you live in the home. But with no mortgage payment to worry about, these expenses are much easier to keep up with.

Learn more about calculating a reverse mortgage loan.

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home equity reverse mortgage