Reverse Mortgages: Using Your Home to Help Pay for Retirement

A home mortgage enables a consumer to buy equity in their home. For example, if a consumer paid into a home for 20 years and had a 30 year mortgage, he or she would have paid off $200,000 during this time. If the home is sold, the consumer would most likely get back at least $200,000, if not more based on market circumstances. So a consumer is getting back the money that was placed in home. Those who rent their home, in contrast, would derive no long term benefit. Home buyers can also use the money they make off of one home to purchase another home that costs slightly more. Because there is enough money for a substantial down payment, the consumer gets a better interest rate, allowing more of their wealth to go directly to the cost of the home with each payment. If this approach is continued throughout a person’s life, they can retire with a significant amount of money, especially if they scale down their home in later years. Another beneficial approach is renting out a bedroom. If a mortgage is $2,000 per month, and a renter pays $1,000 per month for the downstairs, for instance, it means another person is paying a large portion of the mortgage and that it can be paid off early. This reduces interest costs and will pay out eventually. | Read More