Reverse Mortgages or Relocation? A Guide for Retirees Ready to Enjoy Their Home Equity

If you're like most people, you're ready to retire at the age of 65 but need some way to supplement your income after the paycheck stops arriving. The good news for today's retirees is that all of those years spent diligently paying down your mortgage makes your home a virtual bank from which you can use to fund your retirement years. There are 2 options for tapping into the equity in your home without having to repay any debt. The first is to take out a reverse mortgage and the second is to sell your home and buy or rent a less expensive residence. But which is right for you?

Understanding reverse mortgages
Reverse mortgages allow you to stay in your home while using the equity earned like a line of credit. Reverse mortgages are designed for those who either have paid off their current mortgage, or have a small balance remaining.

Instead of making payments on your home as you've done for so long, the bank actually cuts you a monthly installment or a lump sum based on the amount of equity you've earned in your home. The purpose of reverse mortgages is to give homeowners the opportunity to tap into all of the valuable equity they've earned at a time in their lives when most are "house rich" and "income poor".

The economics of relocation
The rising cost of housing seems great when you look the amount of equity you've earned in your home. However, while your home has increased in value, so too have all of the others! If you're thinking about buying another home within the same area, you may be surprised at what a large chunk of your equity will be required to make the purchase.

However, if you're considering moving from one area to location where homes are less expensive, you may be able to walk away with a nice retirement nest egg. Let's assume that Don and Vicky decide to sell their home in Santa Barbara California where real estate prices are 34% above fair market value. They then buy a smaller home near their daughter in Salt Lake City Utah where housing prices are 23% below fair market value. In this case, Don and Vicky have the potential to enjoy a great deal of their equity by purchasing a smaller home in a less expensive area. But what if you don't want to relocate?

Reverse mortgages offer flexibility
Reverse mortgages offer a solution to those who prefer not to move. They are ideal for those who are happy and comfortable in the home that they've established over the years. Reverse mortgages allow you to enjoy a lump sum payment just like Don and Vicky in the above example, enjoy regular installment payments dispersed over the remainder of your lifetime, or a combination of both.

The decision to either take a reverse mortgage or relocate must be based on the unique circumstances and criteria of every individual. The best solution is to look into each option in detail. Compare home prices in various areas, calculate estimated rent costs for the remainder of your lifetime, and talk to a reverse mortgage lender. Either way, look forward to many happy, carefree retirement years where you can finally enjoy the fruits of your labor.

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