How to Recession-proof Your Retirement Have a Mortgage and are age 62+? Consider a Reverse Mortgage

Economists Are Gloomy!? Many feel a recession is coming.

Wharton Business School’s Olivia S Mitchell recently addressed the challenges of retirement, especially for retirees. Key steps: First, “try to put together a summary budget” and “make sure you have an emergency fund.”

“Similarly, paying down credit cards also helps reduce financial stress. “A lot of Americans pay only the minimum; they don’t realize this is mounting expensive debt, and it’s getting them into more and more trouble,” Mitchell continued. She noted that even though the prevailing overall interest rates are low, credit card interest rates are among the highest they’ve ever been.”

“Mitchell’s third nugget of advice was to try and pay down loans such as home mortgages. In the last recession, many people who faced a financial crunch “had very expensive mortgages,” she pointed out. “That’s why there were so many foreclosures. People lost their homes. They really had no way to pay their bills.”

Having to make mortgage payments every month without fail can be a significant strain, which Mitchell has explored in-depth in her work. Recessions can bring job losses for family members, home prices can decrease. Financial markets can drop, hurting withdrawals from retirement accounts as every dollar coming out is a bigger piece of the smaller balance.

As a homeowner, a reverse mortgage may be a good financial move. And an especially good move when used to refinance an existing traditional mortgage in tight financial times. Variable-rate reverse mortgages offer choices that traditional mortgages don’t, in particular as they typically come with a line of credit feature.

With a variable-rate reverse mortgage you can:

  • Make payments when you choose
  • In an amount you choose
  • A payment reduces your loan balance
  • A payment  increases your line of credit dollar for dollar
  • Your line of credit grows at your current loan rate
  • You can draw your payment dollars back out when you choose, plus the loan growth rate. Plus any additional balance in your line of credit.
    • Say your payment was $200 a year ago. You could take $200 back out when you wanted it. If the loan rate was 6%, a year later you could take out $212.

Refinancing a traditional mortgage with a reverse mortgage is often worth considering, but like any other financial tool, it is not the best move for everyone in all situations. Think about your future years, especially how long you will likely stay in your current home.