After her husband died suddenly from a fall in 2016, Marjorie Fox decided to hold off on any big decisions. She waited two years to retire as a financial planner and three to sell their house and buy a lakeside townhome in Reston, Va. For added protection, she took out a reverse mortgage on her new home.
Ms. Fox, 75, had set aside $150,000 in a cash reserve, and the reverse mortgage was another backup. If something unexpected did happen, “it could be when the stock market is down and it could be an inopportune time to sell assets,” she said. Reverse mortgage borrowers can take the money as a lump sum, as fixed monthly payments or as a line of credit. Ms. Fox chose a line of credit, which she could tap as needed.
Within a year, her cash reserve was depleted, and Ms. Fox began pulling money from her reverse mortgage. Among her expenses: $50,000 on emergency dental work and a down payment to reserve a spot in a retirement community set to open in 2025. Untapped money in the line of credit earns interest.
Until recently, it was conventional wisdom that a reverse mortgage was a last-resort option for the oldest homeowners who desperately needed cash. But a growing number of researchers say these loans could be a good option for people earlier in their retirement like Ms. Fox who are not needy at all.
Homeowners in their 60s and early 70s could use cash from a reverse mortgage to protect investment portfolios during market downturns, to delay claiming Social Security benefits or to pay large medical bills.
“The best use of this tool is to provide and supplement income during retirement,” said Craig Lemoine, the director of the financial planning program at the University of Illinois, Urbana-Champaign. “A younger retiree can stay in the house while turning equity into an income stream.” Dr. Lemoine is also executive director of the Academy for Home Equity in Financial Planning, a group of financial and housing experts.
First, the Basics
With a reverse mortgage, homeowners 62 and older can borrow against the value of their home. The loan and the interest on the money that was taken out come due when the last surviving borrower or eligible nonborrowing spouse dies, sells the house or leaves for more than 12 months, perhaps to enter an assisted living facility.
When you apply for a reverse mortgage, you’re required …….