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To borrow or not to borrow

A lifetime of good choices and regularly seeking money advice put Dina’s family in a good financial position. She claimed her household income is $158,000, while she and her husband have no debt besides a small mortgage, don’t eat out much and drive old cars.

The mortgage is worth $41,000. Dina said her savings over the next few months, combined with $28,000 in a tax-sheltered annuity, should be enough to pay the mortgage off fully by August 2024.

Dina planned to complete one final school year and retire at the age of 60.

However, the condition of their house is getting in the way of a fairytale ending. Their family home is roughly 24 years old and in need of some repairs.

Dina said the siding needed to be replaced, and the family wanted to add a sunroom to the back of the house. She didn't have estimates for how much these renovations would cost but is willing to consider a HELOC or reverse mortgage to finance them.

Ramsey isn’t a fan of that idea. “Where is that woman who called and said she [regularly] listened to [my] show!?” he asked.

Like Dina, many seniors consider complex financial instruments to tap into the value of their homes.

A reverse mortgage is a loan that allows seniors to convert some of their home equity into cash. The borrower doesn’t need to pay interest or principal while they live on the property, but the loan becomes due with accumulated interest when they move away permanently or pass away.

There are about 480,000 reverse mortgages outstanding in the U.S., according to a 2023 report by the National Consumer Law Center (NCLC).

Industry experts believe these instruments could see more adoption in the coming years as seniors tap into their enormous housing wealth. However, Ramsey called getting a reverse mortgage a “bad idea,” and the NCLC report said, “reverse mortgages end in foreclosure much more often than they should.”

Instead of borrowing money, Ramsey recommended some patience.

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Delay retirement

Dina could afford her renovations if she postponed her retirement and financed it herself, Ramsey said.

Considering her household income and the fact that mortgage payments won’t be an additional burden after August, Ramsey estimated that Dina can pay for her renovations within a couple of years if she just worked a little longer. He also recommended getting a quote on the renovations so that she and her husband can create a detailed plan for the projects.

“Work two more years, who cares?” Ramsey said. His co-host Jade Warshaw agreed: “If you can save to pay off the house, you can save to do these improvements; it’s just going to take a little time.”

A little patience should save Dina’s retirement nest egg.

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Vishesh Raisinghani Freelance Writer

Vishesh Raisinghani is a freelance contributor at MoneyWise. He has been writing about financial markets and economics since 2014 - having covered family offices, private equity, real estate, cryptocurrencies, and tech stocks over that period. His work has appeared in Seeking Alpha, Motley Fool Canada, Motley Fool UK, Mergers & Acquisitions, National Post, Financial Post, and Yahoo Canada.

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