You probably never think about the value of your homes as a potential resource for retirement. Conventional wisdom would tell you to preserve the home equity as a last resort option. If the value of your home did not need to be used it could be left as part of our legacy to the next generation. Maybe there is another perspective to the conventional way of thinking.
Just like cash and investments, your home is an asset which is part of our personal financial balance sheet. Yes, it provides you with a place to live but it can also be a resource to help meet retirement spending needs.
Setting into place a HUD approved Home Equity Conversion Mortgage (HECM) or reverse mortgage, allows you to access part of the equity in the home, turning an otherwise illiquid asset into a liquid resource.
Under a HECM, there are four ways in which you can access the proceeds from a reverse mortgage, lump sum payout, tenure payments which are similar to monthly annuity payments which are fixed payments guaranteed to be paid as long as the borrower is living in the home, term payments which resemble tenure payments but are taken for a certain number of years instead, and finally the line of credit where the equity value does not need to be spent today or ever but is available for use. You may also combine several of these options and opt for a modified tenure or modified term payment and also take a line of credit on a portion of the available credit.
Why might you want to set a HECM into place today? If you plan on staying in your home for retirement, a HECM reverse mortgage can be used in a number of ways as part of your retirement plan.
Meeting retirement cost of living needs requires spending assets somewhere from the retirees’ balance sheet. The home is one of those assets. Drawing from a HECM is not debt accumulation but instead spending from an asset. Setting into place a HECM turns an illiquid asset into a liquid one creating additional flexibility with retirement spending needs.
Not all retirees should take a reverse mortgage but those who wish to remain in their homes for as long as possible should view this asset as more than an asset of last resort given the possibilities and increased flexibility it offers with one’s retirement decisions.