There are 3 ways in general to buy a new home in retirement: all cash, a traditional mortgage, or a reverse mortgage. Two of these options allow for no monthly mortgage payments, but is that the optimal solution for your situation? Let’s review a real-life scenario that one of our clients experienced while debating this dilemma with their various advisors.

A Real-Life Scenario

Let’s consider the case of a couple in their 60s facing financial uncertainty. Their current home, valued at $550,000, is encumbered by a $225,000 mortgage, leaving them with $325,000 in equity. Their combined social security income of $2,950 is barely enough to cover their monthly mortgage payment of $1,400. With limited retirement savings, they’re in a precarious financial position.

Analyzing the Options to Buy a New Home in Retirement

Three options present themselves:

1. Digging into Potential Retirement Savings: This approach would require the couple to spend all the cash they earned from the sale of their previous home to buy a new home, if they could find one in their price point; leaving them with no retirement savings.
2. Downsizing with a Traditional Loan: While downsizing could reduce their monthly expenses, they would still need to rely on their retirement savings to supplement their income while struggling to pay a new monthly mortgage payment and possibly increased expenses and upkeep on their new home.
3. Downsizing with a Reverse Mortgage: This option allows the couple to buy a new home without monthly mortgage payments, preserving their social security income and potentially increasing their retirement savings.

The Optimal Solution is Clear

In this scenario, our clients and their advisors were in debate about how to buy a new home in retirement. A reverse mortgage for purchase shows as the most advantageous option. By utilizing the equity from the sale of their current home, the couple can buy a new home without incurring monthly mortgage payments and possibly even put some of that money away for a financial security net. This frees up their social security income for living expenses and may even allow them to retain a significant portion of their retirement savings.

With various reverse mortgage options now available to people as young as 55, these loans offer retirees a valuable opportunity to downsize and enjoy a comfortable retirement without the financial stress of monthly mortgage payments. When deciding how to buy a hew home in retirement, it is imperative to consider all options available. By understanding the benefits of these loans, they can be tailored to individual needs and lead to a more comfortable and relaxing quality of life.