Your retirement is supposed to be a time in your life when you can enjoy the fruits of your labor. Still, when retirement age nears, it’s natural to want to re-evaluate how you’re doing from a financial standpoint.
Recent data shows that the topic of retirement savings is top of mind for many Baby Boomers, who will be leaving the workforce in the next few years, if they haven’t already. PwC, a firm that provides a variety of services to businesses around the world, recently released its 2017 Employee Financial Wellness Survey. It includes some interesting findings. Let’s start with the positives.
- Among the 59% of Baby Boomers who plan to retire in the next five years, 70% said they felt comfortable making their retirement savings last for the rest of their lives
- Baby Boomers are saving for retirement at a higher rate than the generations that have followed them, with 80% saying they’re currently saving for retirement
You have to take the bad with the good, and there are also some details in the survey that aren’t encouraging:
- Only 42% of Baby Boomers feel they know how much income they’ll need in retirement
- Perhaps as a result of this, 36% of Baby Boomers are concerned about running out of money
- Rising health care costs are also a concern for 34% of this generation, and 42% aren’t confident they could cover medical bills
The statistics can certainly be scary, but with the right financial planning, you can use your retirement to focus on the things that are important to you while not compromising on future needs. Whether you’re nearing retirement or already there, it’s important to take a thorough look at your financial picture.
It’s easy to think of your home as a place where you can have friends and family over. It’s also a roof over your head and a space to sleep. However, for most of us, our home is the single most valuable thing we’ll ever own. That means it’s a big financial resource that you potentially have a lot of equity built up in. You may very well be able to use that equity to your advantage. On the other hand, you may be able to refinance to lower your payment. Let’s go over your options so you can make sure you’re making the best possible use of your home in your retirement planning.
Lowering Your Payment
When you retire, you’re losing an income stream. With that in mind, it could be very helpful to take a look at your mortgage payment and see if there’s a way to make it work better with your budget.
As a result of various economic and political factors, mortgage rates have remained very low recently. If you haven’t looked at refinancing in a while, note that you may be able to lower your payment by lowering your rate.
Another good way to lower your payment might be to take a look at lengthening your term. Taking a 30-year term can provide you with a lot of flexibility. You have the option of paying down your loan faster by putting extra money toward the principal when you have it. However, when you have big expenses like an unexpected medical bill or anything else that might come up, you still have the option of a much lower monthly mortgage payment. You can then take your payment savings and put it toward other expenses you might have.
Take Cash Out of Your Home
If you’re looking to free up some cash for expenses, remodeling or really anything else you need, one thing you might take a look at it is converting some of the existing equity you have in your home into cash.
If you have an unexpected medical bill or another expense, having that cash on hand can really help supplement your existing retirement savings. It keeps a big bill from putting you over the edge.
Taking cash out may also help you make the necessary accessibility upgrades to your home in order to keep you in your home a little longer when you can no longer move as well as you once did. If you use your home equity for this, you can use your existing retirement funds for other things. It’ll give you added financial flexibility.
Maybe you have enough equity built up in your home to take advantage of – whether you own the home free and clear or still have a mortgage on it. You’d like to convert that equity into something that can be helpful in your retirement planning, but you don’t want to have a mortgage payment anymore.
If you’re a homeowner age 62 or older, you can take a look at a reverse mortgage, also known as a home equity conversion mortgage. This enables you to take equity out of your home and convert it into cash, a line of credit or even a new home without having to take on a new monthly mortgage payment for as long as you remain in the home.*
We’ll briefly go over how reverse mortgages work here and what happens if you move out of the home or pass away.
Reverse Mortgage Options
All of the reverse mortgages provided by One Reverse Mortgage are insured by the FHA. They come in three different varieties to better suit each individual client’s needs.
Fixed-Rate Loan: The interest rate on a fixed-rate loan is locked in place at the time you close your loan. The money is disbursed through one lump sum payment.
Adjustable Rate Loan: The adjustable rate loan offers financial flexibility, but the interest rate may change throughout the life of the loan. You can receive your proceeds in one lump sum, monthly payments, a line of credit or any combination of the three. The line of credit can be an effective financial tool for you. Maybe you don’t need the money right now, but you’d like to have it available when you do need it. You can get a reverse mortgage in which part or all of the loan amount (which is based on age, amount of equity and current interest rates) is a line of credit that has available funds you can let grow in value over time. The money is accessible whenever you need it. You also have the option of making payments back into the account to add to the growing amount of funds.
Purchase: Another option is for you to use a reverse mortgage to purchase a home that better suits your physical needs, is closer to family or, perhaps, is located in a warmer climate. You still have to pay a down payment. The size of that is based, at least partly, on the age of the youngest borrower or eligible non-borrowing spouse. However, by using a reverse mortgage to purchase a home, you won’t have a monthly mortgage payment* as long as you live there.
Paying off a Reverse Mortgage
A reverse mortgage doesn’t have to be paid off until the last borrower on the loan moves out or passes away or the home is sold. It’s also a non-recourse loan, which means you or your heirs won’t have to pay back more than the home is worth.
When it does come time to pay back the loan, you have a few options:
- Your heirs can sell the home. If there’s any money left over after the balance is paid off, you get to keep it.
- If your heirs prefer to keep the home, they can refinance it into a regular conforming mortgage for the loan balance or 95% of the home’s appraised value, whichever is less.
- If your heir isn’t interested in keeping the home and doesn’t want to deal with the payoff, the property can be turned over to the servicer to sell.
If you’re interested in a reverse mortgage, our friends at One Reverse Mortgage can help you out. You can get started online or call (800) 401-8114.
If you’re at or near retirement and would like to lower your payment or utilize your home equity by taking cash out, you can get a full refinance approval online through Rocket Mortgage® by Quicken Loans®. If you’d prefer to get started over the phone, one of our Home Loan Experts would be happy to take your call at (888) 980-6716. If you have questions, leave them for us in the comments section below.
*The homeowner is still responsible for taxes, insurance and property maintenance.
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Source: Home Loans