Use a reverse mortgage to pay off an existing mortgage carrying a monthly payment
Many homeowners today choose to retire, or are obliged to, before they have fully paid off their mortgage. With their income reduced, the required monthly mortgage payment can become heavily burdensome.
If the balance is not too large relative to the value of the home, it can be paid off with the proceeds of a home equity conversion mortgage (HECM), the reverse mortgage offered by the Federal Housing Administration, which has no required payment.
If the borrower is 62, the balance of the old mortgage can’t exceed 50 percent of the value of the home; the cutoff rises to about 68 percent for a borrower of 87.
The conversion of a standard mortgage to a reverse mortgage is not for everyone.
Use an HECM term payment to delay taking Social Security
For most seniors, waiting until age 70 before collecting Social Security, as opposed to taking a smaller amount earlier, is an excellent investment. A senior who could draw $1,350 a month at age 62 would see the draw increase to $2,376 at age 70.
Yet more than two of every three workers eligible for Social Security take it early. One major reason is that they are short of income. This can be remedied if they are homeowners with equity.
Not that much equity is needed. If the borrower is 62, a monthly payment of $1,000 covering the eight years until age 70 is available with equity of $155,000. At age 67, when the payment term is only three years, the required equity is only $66,000. If the borrower has more equity than is needed, all the better; it can be drawn on to meet other needs as they arise.
Increase monthly income during lifetime in house
The most straightforward remedy for inadequate income is what is called a “tenure” payment, which is a monthly payment that runs as long as the borrower resides in the house. A tenure payment can be converted into a credit line at any time, and if the recipient dies early, substantial equity remains for the person’s estate. On the other hand, if the recipient must move permanently to a nursing home, the tenure payment will stop.