Retirement Planning and Reverse Mortgages

By: Christine Harrell

Reverse mortgages are one of the most innovative and advantageous financial products available to Americans today. They aren't like refinance mortgages or second mortgages. Reverse mortgages actually allow those 62 and over to cash in on the value of their home and enjoy the equity they've accrued while still living in their home.

Reverse Mortgages: The ideal financial solution for retirees
Once income slows down in the retirement years, it's time for a new approach to thinking about your investments. Most people understand that their home is an investment, but one that presumably would need to be sold to enjoy the benefits.

Once sold, there is still the dilemma of securing housing which can easily deplete all of the earned equity in the home and more. However, reverse mortgages offer a solution to both housing and cash flow by allowing homeowners to stay in their homes and receive either a lump sum amount or payment in monthly increments without any loan to pay back.

How Reverse Mortgages Work
Reverse mortgages aren't like second mortgages where you are essentially buying your own house back at today's value and receiving the difference in cash. With reverse mortgages, the homeowner(s) retain(s) title to the home and remain in the home until it is sold or until death of the homeowner(s). All remaining equity may be passed on to heirs.

With reverse mortgages, retirees can use the equity they've earned in their homes to enjoy their retirement years instead of the equity being tied up until they are unable to enjoy it. Whether that means living comfortably without having to take on a part time job, or taking trips to places you've waited a lifetime for, the equity you've earned in your home can be yours to enjoy with a reverse mortgage.

How Reverse Mortgages Pay Out Equity
Reverse mortgages offer four ways to be paid earned equity;

Lump Sum - All of the earned equity is given to the homeowner at the closing of the reverse mortgage.

Line of Credit - Upon completion of the reverse mortgage, homeowners have access to all of the equity earned in the home in the form of a line of credit that can be accessed at any time.

Tenure - With tenure, homeowners receive fixed monthly payments. Tenured payments under the FHA/HECM program are guaranteed for life and can never terminate, regardless of equity position.

Modified - Homeowners can modify the way they receive money by using combinations. For example, homeowners can receive a lump sum of cash at closing and put the balance on a line of credit. Or, homeowners can receive cash at closing and receive the balance in monthly payments. Monthly payments can be set up for a specific term, which allows for higher monthly income, or they can be set up as tenured payments. All combinations are possible, cash at closing, line of credit and monthly payments.

How Do Reverse Mortgages Impact The Kids?
By taking out equity in the home during retirement years, there will certainly be less to pass on in the form of an estate. However, reverse mortgages allow homeowners to live financially independent of their children during retirement years. With the rapidly increasing cost of living, more and more retirees are finding themselves in the uncomfortable situation of having to ask for financial assistance from their children. This puts children in a difficult position as well; not wanting to deny parents of aid, but likely struggling with their own financial burdens. So while children may receive less in the form of an estate after the death of their parents, they can rest assured that their parents are financially secure during their retirement years.

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