As one year ends and a new year begins, many people reflect on their financial situation. The holidays can be a time to pay off accumulated debt or take out loans for other reasons.
Fortunately, if you’re a senior looking for an affordable way to access cash in 2023, there are multiple options to consider. Here are three:
First is life insurance. You wonder how you can getIn short, permanent policies come with a “cash value” component that you can withdraw or borrow from. Remember that Policy does not have this feature.
You can usually borrow up to a certain percentage of your accumulated cash value, such as 90%, and then pay it back whenever you want. However, interest will accrue, so the longer you take to pay off the amount, the more you will owe. Lenders may also let you withdraw your cash value and avoid interest charges, but doing so will reduce your death benefit.
Another aspect to be aware of is that the amount you borrow will be protected by your death benefit. If you die with an outstanding balance, it will be deducted from the amount your beneficiary receives. On the upside, there are usually no credit or income checks. Additionally, interest rates are often lower than personal or home equity loans.
To determine if this is the right path for you, it may help to ask yourself a few questions. “Is the policy thought of as an additional savings account? If so, it might make sense to borrow. If there’s a specific need that requires the entire amount at the time of death—probably not so much,” says Warren, financial advisor at WWA Planning. Ward CFP and Investments.
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If you own a significant percentage of your home and are at least 62 years old, amay be a good option for you.
As the name suggests, it works like a reverse mortgage. Instead of paying the lender, the lender assesses the amount you can borrow based on your equity and pays you. You can often choose between monthly payments, a lump sum or a line of credit. Then, interest and fees will accumulate over time.
The main advantage of a reverse mortgage is that you don’t have to pay back the amount you borrowed while you live in the home. The balance becomes due after you die or when the home is no longer your primary residence if you wish to leave the home to an heir. They have to pay off the reverse mortgage to keep it.
“Reverse mortgages are best when you need steady cash flow and have equity in your home,” says Michael Collins CFA, a financial advisor with WinCap Financial.
Not sure if this makes sense for you? You can now easily start exploring your reverse mortgage options online
If you build equity in your home, cash-outAllow you to borrow against it. They involve getting a new larger mortgage loan, paying off your existing mortgage and using the rest as you wish. The new loan amount (including interest and fees) will be divided into monthly repayments over a fixed period.
These loans are secured by your home so if you don’t pay as agreed, your home could go into foreclosure. You also typically cannot borrow the full amount of your available equity. Loan-to-value will be set at around 80% to 90%.
On the upside, Collin says, “a cash-out refinance can offer a lower interest rate than other options, allow you access to a larger amount of money, and can be tax-deductible.”
Here’s a look at whether a cash-out refinance makes sense for you now.
Many seniors are finding the recent Social Security cost of living adjustments. The good news is that there are several ways to access cash when you need it. However, it is important to carefully consider the pros and cons of each option. If you have any doubts or questions, you can contact an attorney or certified financial advisor for further guidance.