If you've recently been given the responsibility of raising your minor grandchild or grandchildren, you may be scrambling as you wonder how to shift your plans for retirement into plans to raise a family again. Even with the benefit of child-support payments (which many custodial grandparents don't regularly receive), caring for your grandchild through the age of majority can be a tough prospect—especially if you weren't sure you'd even be able to afford to retire within the next few years. Read on to learn more about how a reverse mortgage may be able to free up the cash flow you need to provide the necessities (plus extras) for your newest family member.
IS A REVERSE MORTGAGE A GOOD OPTION FOR THOSE RAISING YOUNG CHILDREN?
Because reverse mortgages (also called home-equity conversion mortgages) are generally available only to borrowers aged 62 or older, they're not usually considered part of the financial plan for new parents. However, for those who have recently hit this age milestone and are raising young children, a reverse mortgage can take advantage of existing home equity while allowing you to remain in your home for as long as you wish.
Unlike a traditional mortgage, with which you'll make regular monthly payments to the bank or credit union that holds title to your home until the full loan amount is paid, a reverse mortgage allows you to be paid (either in a lump sum or regular monthly installments) from your home's equity. You'll continue to hold a life estate in the home until your death, which means there's no worry about losing your home to foreclosure as long as all real-estate taxes are paid on a timely basis.
You'll also be able to free up the equity in your home without going through the refinancing process, which still requires you to make monthly mortgage payments (sometimes a difficult task for those who have grown used to a mortgage-free lifestyle and are juggling the hectic lifestyle that comes with young children) and can carry the risk of foreclosure if several payments are skipped.
WHAT FACTORS SHOULD YOU CONSIDER WHEN DECIDING WHETHER TO GET A REVERSE MORTGAGE?
If you own your home and are interested in increasing your household cash flow after taking custody of your grandchild or grandchildren, there are a few questions you'll want to ask yourself before pursuing a reverse mortgage.
Do I Plan to Stay in This Home for Several Years or More?
When a reverse mortgage is used to convert home equity in a home you're planning to stay in for the foreseeable future, it can make good financial and logistical sense -- but taking out a reverse mortgage on a home you plan to sell soon may not be the wisest choice. If you're facing cash flow problems but don't want to spend more than a few years in your home, you may want to instead consider taking out a home equity loan or refinancing to a low interest rate instead.
What Does The Rest of My Financial Picture Look Like?
It's also important to consider how a reverse mortgage ties in with the rest of your financial plans. In some cases, taking custody of a young child may actually accelerate your retirement plans, especially if you're not able to afford full-time daycare while holding down a job yourself. In other situations, you may find yourself needing to work a few years longer than you planned in order to afford the increased expenses of an extra household member.
Regardless of your financial situation, it can be a good idea to sit down with one of our skilled brokers or financial planners at Retirement Funding Solutions to get the full picture of your available options.