#14 Benefit from the Run-Up in Home Prices Without Selling
LET YOUR HOME FUNCTION AS YOUR BACKUP RESERVE FUND
It’s a good time to sell a home in Indiana, as you and your friends were discussing just the other day. “List on Thursday and have multiple offers by Sunday,” your newspaper reported recently.
You hate to miss out on such a selling bonanza, but the two of you haven’t the slightest interest in moving. What you had been discussing is taking out a second mortgage in the form of a line of credit, perhaps also refinancing your basic mortgage (now scheduled to be paid in full by the time you retire).
Your general plan – lock in today’s low interest rates on the basic mortgage, then work to get it completely paid off within the originally planned three year time frame. Meanwhile, you reason, the home equity line of credit would serve as a backup “reserve fund” to help you transition into retirement.
Good thinking, but you might be ignoring another option, which is trading your forward mortgage for a reverse. As with a forward loan, you would be taking advantage of the increased “wealth” in home equity produced by the housing “boom”. And, in keeping with your original plan, you would continue to make monthly mortgage payments.
Big difference is – with a reverse mortgage, not only could your mortgage balance be paid off in approximately the same length of time as you had planned for the traditional mortgage, but in the process of making payments, you’d be funding your own future “Line of Credit”.
Consider this: Putting your borrowing strategy into “reverse gear” means allowing your housing wealth to function as a natural “backup plan”.
*Borrower must occupy home as primary residence and remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees.