2169 East Rutland Lane, Martinsville, IN 46151
Corporate NMLS #1025894
Your income has been more than sufficient to keep up mortgage payments of just over $2000 a month. But as retirement draws near (planned for next summer), you’d appreciate being able to erase the monthly payment obligation and use your retirement income to pay for lifestyle luxuries. Liquidating cash reserves and selling a big enough chunk of investment assets to liquidate the mortgage entirely is a plan that lacks appeal because of the tax liability that would generate. Meanwhile, you’re aware of the current “housing boom” will last (several neighborhood homes have sold at substantial premiums, you’ve noted), but doubt that strong demand is going to last. In any event, you’ve decided to remain in your home rather than selling. One move you’re considered is a mortgage refinance (rates have definitely fallen since you purchased the home, and you don’t know how long these lower rates are going to be available).
There’s an alternate plan to consider as a way of taking advantage of the very two factors you’ve mentioned (higher home values and low interest rates) in the form of a reverse mortgage with the purpose of leveraging your home’s equity to pay off the existing mortgage loan. Here’s a general idea of how that might work: Assuming that your home’s value has appreciated to the point of being more than double the outstanding mortgage, your reverse loan would “replace” your traditional mortgage loan, locking in today’s high loan to value via today’s low interest rates. Yes, your home would still be mortgaged; the big difference would be that, going forward, you would be free to choose whether to make monthly (or indeed any) mortgage payments.
With no need to liquidate cash reserves or sell investment assets (or to move), you can take advantage of the twin phenomena you’re noticed – increased home values and low interest rates! Rather than tapping your investment wealth, you’d be tapping your housing wealth as your launch your retirement.