When it comes to getting your financial ducks in a row, saving for retirement is something you need to do sooner rather than later. Unfortunately, far too many Americans still aren’t as prepared for their later years as they need to be. According to the Employee Benefit Research Institute’s 2015 Retirement Confidence Survey, 28% of workers have less than $1,000 saved for retirement.
If your retirement accounts are on the skimpy side and you’re closer to 65 than 25, you might be feeling a little panicky about how you’re going to make up the difference. While you should be using the time you have left working to sock away as much cash as possible, there’s another solution for coping with a retirement shortage: a reverse mortgage.
How a reverse mortgage works
Normally when you buy a home with a mortgage, you make a payment to the lender each month until the loan is paid off. A reverse mortgage involves doing the opposite, as the name suggests.
Also known as a Home Equity Conversion Mortgage (HECM), a reverse mortgage is a way to tap your equity without having to make payments. Instead, the bank makes either a monthly or lump sum payment to you, based on how much equity you’ve built up.
You still live in the home and hold on to the title and you pay nothing against the loan. You do, however, have to keep up with your homeowner’s insurance and property taxes. Any money you get from a reverse mortgage typically isn’t taxable and you may be able to roll the closing costs into the loan so you don’t pay anything out of pocket.