Tell me if this scenario sounds a little familiar. The cost of living keeps increasing and your income remains fixed. Every year the bare essentials seem a little harder to obtain for a comfortable retirement. Property taxes, homeowners’ insurance, credit card interest and the cost of common goods continue to go up. The future and your retirement are at the forefront of your mind more and more as these realities settle in.
Although the situation above can be felt by homeowners of all ages it is harder for retired people on a fixed income to cope. The good news is you might be literally sitting on your solution. If you have equity in your property then your income supplement may be closer than you think. I have spoken with thousands of retired individuals and couples over the past 10 years that are “house rich and cash poor.” This is a term many of you have probably heard before and can relate to. You struggle with the month-to-month spending requirements, but you have hundreds of thousands in the equity of your property.
How can you access this money, so that you can supplement your income without increasing your monthly debt? This is the million-dollar question. Many of the homeowners I speak with first inquire to refinance their first mortgage in an effort to obtain some additional cash-out. Qualifying for that cash-out refinance can be a lot more difficult than it sounds. Even though the homeowner has plenty of equity to access, their monthly debt-to-income ratio prevents them from qualifying. In today’s mortgage market lenders will want to see a debt-to-income of around 43%, which can be too tight for a homeowner on a fixed income that is already tight on their monthly spending capability.
The second option that a homeowner might inquire about is a HELOC, or a home equity line of credit. These types of mortgage loans do require a qualification process, but can be easier to obtain than a conventional cash-out refinance. A lot of homebuyers will start at their personal banking institution to qualify for the HELOC. A quick $100,000 line of credit might seem like a great solution to your problem, but let’s take a closer look.
The HELOC is an interest only loan for the first 10 years. While the lower monthly payment looks appealing since no money is required to be paid towards the principal this is most likely a catch-22. If no money is going towards the principal then the loan is not being paid down each month. It is a monthly debt that is not going away anytime soon. In addition, after the first 10 years the required payment will include principle, so that monthly payment will increase.
Although, the two mortgage product options discussed can infuse more money into your retirement it lacks in the most important piece of the puzzle, which is eliminating or minimizing a retiree’s out-of-pocket monthly debt. What happens when the money obtained is used and a homeowner is left with that additional monthly payment? I might not even need to project that far down the road, because I have seen homeowners start to use the additional money they received to actually make the monthly payment on that loan. This type of strategy can only work for so long, if at all.
So, what is the solution? If you are a homeowner reading this that is the age of 62 or older you might want to inquire about a government insured reverse mortgage. What is a reverse mortgage? A reverse mortgage is a mortgage product that can give homeowners a line of credit, cash out, monthly distribution, or all of the above. There are numerous ways that a homeowner 62 or older can take control over the equity in their home.
The best part is that the homeowner can also eliminate having to pay the mortgage payment out-of-pocket for as long as they live in the property. Never make another mortgage payment out of-pocket ever again, or continue to pay as little or as much as you want, every month. The choice is yours with a reverse mortgage. You can tailor fit your mortgage to your retirement needs. Please know that the homeowner will still be required to make their property tax, insurance and HOA payments on time each year.
A reverse mortgage cannot only increase your available money, but it can eliminate most homeowner’s biggest monthly out-of-pocket debt. If you want to know more about qualifying for this program then you should visit the reverse mortgage calculator. It will only take a second to let you see your retirement future a little more clearly.