Reverse Mortgage magazine Nov-Dec 2020

term of the mortgage, meanwhile, may result in a higher monthly payment but enables the homeowner to get out from under the debt more quickly. On the other hand, refinancing may not make sense if it means the homeowner will assume a longer mortgage term, or if the homeowner expects to sell the residence within several years. If refinancing is deemed to be a financially sound step, Nolte suggests shopping around to find the most favor- able terms, taking into account all the costs involved in the transaction. If you have an existing relationship with a bank or credit union, that relationship may net a discount on the rate or on closing costs. Otherwise, sites, such as bankrate.com and lendingtree.com , post current mortgage refinance rates from lenders across the country. A Home Equity Line of Credit The HELOC is another way to tap the equity you’ve built in a home. In this case, a lender provides a line of credit tied to the appreciated value of the home. The homeowner then can use this line of credit when and how he or she wants (subject to certain terms specified by the lender), with the obligation to repay any amount he or she uses, plus interest. Here’s another instance where it’s wise to use those funds in a constructive way. Say the inter- est rate for the HELOC is five percent and you are carry- ing a credit card balance with a 15 percent interest rate. Wouldn’t it make sense to take the HELOC funds that carry a much lower borrowing cost and apply them to pay down the credit card, which carries a much higher borrow- ing cost? The same logic applies if the HELOC funds are used to pay for a home remodel, where the added value to the home as a result of the remodel could easily justify the cost of borrowing the money to fund the project. Rental Income Try using your home as a rental property to generate income or purchasing a second home and renting it out for income. Either of these can be a viable option under the right circumstances, according to Nolte. If you’re in a good enough position financially to either purchase a second home outright with cash or to take on a mortgage to buy it, and you’re willing to be a landlord for short- or long-term tenants, a rental property not only can provide a steady source of income, it’s an asset whose value could potentially appreciate over time. For people with flexibil- ity, there’s also the option of turning their current home into a rental property, then moving into another home that they either buy or rent. Given the financial ramifica- tions, as well as the many moving parts involved in these types of decisions, be sure to seek guidance from a finan- cial professional you trust. Reverse Mortgage Consider using a reverse mortgage for income later in life. Homeowners age 62 and over can convert the value of their homes into income via a vehicle called a reverse mortgage or HECM, short for Home Equity Conversion Mortgage. Essentially, the homeowner is bor- rowing against the equity in his or her home to obtain either a lump sum payment or income stream. People who expect they will lack adequate income to cover their needs in retirement, or who want to use funds from a reverse mortgage strategically as part of their retirement income and investing plan, may be solid candidates to at least consider a reverse mortgage, according to Nolte. Here again, it’s wise to consult a financial professional well-versed in the pros and cons of reverse mortgages before committing to go down that path. For more information, contact Merrill Financial Advisor Brian Fields of the Camp Hill, PA, office at 717-975-4602 or bfiels3@ml.com . MerrillLynch,Pierce,Fenner&SmithIncorporated(alsoreferred to as “MLPF&S” or “Merrill”) makes available certain invest- ment products sponsored, managed, distributed or provided by companies that are affiliates of Bank of America Corporation (“BofA Corp.”). MLPF&S is a registered broker-dealer, Member SIPC and a wholly owned subsidiary of BofA Corp. Investment Products: Are Not FDIC Insured Are not Bank Guaranteed May Lose Value REVERSE MORTGAGE / NOVEMBER-DECEMBER 2020 7