A reverse mortgage is an option for retirees to create cash flow

Options for bringing in cash after someone has closed the book on a career can be limited, but for those willing to entertain the option with a clear path to a material benefit, a reverse mortgage could provide one such path to new cash flow after retiring.

This is according to a column by Robin Hartill, a financial planner with the Motley Fool and published by USA Today.

“If you own your home outright or you have significant equity, a reverse mortgage may be an option,” Hartill writes. “Essentially, it’s a loan in reverse where the lender makes payments to you instead of you paying the lender. You’ll need to be at least 62 to qualify.”

She goes on to describe what can cause a reverse mortgage to be called due and payable, including moving out of the home or passing away, and the way the loan balance can be ultimately settled by either repayment or by selling the home.

She also goes on to talk about some of the situations in which such loans might be options worth exploring, while also advising full awareness of the product’s particulars before someone chooses to enter such a transaction.

“Reverse mortgages aren’t for everyone,” she writes. “They’re often complex, they come with fees, and your balance will grow higher each month as interest accrues. You also typically can’t borrow the full value of the home. But if you’re a homeowner who has a pressing need for retirement income, a reverse mortgage is worth considering.”

The component of a reverse mortgage being “worthy of consideration” has been sought by many industry educators and engaged financial planners over the past several years. In this instance, the reverse mortgage option was presented alongside other, more conventional cash flow options for retirees including a health savings account (HSA), dividends and interest, Social Security spousal benefits and part-time work.

This evolution of reverse mortgage consideration was also recently highlighted by the New York Times in an article last month.

“Until recently, it was conventional wisdom that a reverse mortgage was a last-resort option for the oldest homeowners who desperately needed cash,” the April Times article reads. “But a growing number of researchers say these loans could be a good option for people earlier in their retirement.”