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What is the real deal on REVERSE Mortgages November 6, 2007

Posted by shaferfinancial in Uncategorized.
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Here in Florida, reverse mortgages are becoming popular.  The lenders have discovered a new market, seniors with lots of home equity but little income.  Of course the lenders here in Florida have put advertising for reverse mortgages into heavy rotation.  But what is the real deal on reverse mortgages?

First of all, reverse mortgages are expensive.  They have heavy fees and work on a compound interest method that is sure to eat through retiree’s home equity rapidly.  The new reverse mortgages are government backed; therefore they have some protection for the home owner.  For example, you can no longer lose your home.  And your heirs have 1 year to sell the home and pay back the mortgage.  If you move out of your home, you have to pay back the mortgage within one year.

The lenders will usually loan to up to 60% of the value of the home.  It can be paid out in a lump sum or on a monthly basis.

So much for the good news.  The bottom line is that these loans should only be considered at the very last resort.  What has taken you years to build up can be spent in short order.

The truth is that the financially savvy thing to do, when the seniors find themselves in a predicament of little income, but a paid for home is to sell the home.  Take the proceeds from the sale of the home and buy an immediate annuity or a annuity with a lifetime income benefit.  This will give the senior much more yearly income, which they can use to rent.

In this area, seniors are taking out a reverse mortgage in order to keep up with insurance payments.  Taxes and insurance payments almost always go up over time and can seriously affect folks on a fixed retirement income.  On the other hand, there are many rental units available where the owner would love to have senior citizens rent from them.  No loud parties, no irresponsible behavior, payments on time all characterize the rental behavior of seniors.  Many landlords will not ask for annual rent increases for seniors because they are such good tenants.

Part of the job for folks who have parents or love ones that are in this predicament is to guide them to the emotional decision of selling the family home.  Tough, but the alternative is to see all that work of paying off a mortgage go to waste. 



1. 15 year vs. 30 year mortgages | The Wealth Building Society - March 31, 2014

[…] I would like to enter retirement with no debt either, but I would prefer to carry debt if it meant I had more cash flowing wealth. After all, true financial freedom isn’t being debt free. It’s when you have enough solid cash flowing assets such that you can pay off all your debts if you had to, but you simply choose not to. Being house rich and cash poor is not a good way to live your retirement. People that enter retirement with little income tend to end up working at Walmart or taking out expensive reverse mortgages. […]

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