Tags: Retirement | retirement | reverse mortgage

Things to Know About Reverse Mortgages in Retirement Planning

By    |   Saturday, 13 June 2015 05:31 PM

For some older than age 62, a reverse mortgage is an easy financial step and can help fill the gap when retirement income is scarce. But there are many pitfalls and caveats for those seeking such a funding stream, and analysts urge caution for those pondering this option.

On the bright side, solid credit, a good job and income don't really matter for someone who wishes to be considered for a reverse mortgage, which provides a fast cash infusion that doesn't have to be paid back until the borrower dies, MarketWatch noted.

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While reverse mortgages were for a time abused, new rules are now in place for those loans that have helped to offer a layer of protection all around, Kiplinger said.

The amount you can borrow is contingent upon several factors, including current interest rates, the home's value and the ages of the owner or owners of the home, Forbes said.

Payouts from a reverse mortgage comes in three ways: a lump sum of the whole amount, a line of credit that can be used when needed, or a tenure option that offers a borrower monthly payments as long as they stay in that home.

Reverse mortgages are called "non-recourse" loans. That means that the lender gets only the value of the loan in return, not an extra profit if the home is ultimately sold for more than the amount of the loan itself. As a bonus, a reverse mortgage homeowner doesn't have to pay more if the home he or she borrowed against fails to meet the value of that loan upon the sale, Forbes reported.

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On the downside, the fees associated with a reverse mortgage transaction can be brutal. They include mortgage insurance premiums, closing costs, loan origination fees and service fees. Another thing to consider for a borrower: If they had to move to a nursing home or had to move out for more than 12 months, the loan must be immediately repaid.

Those who obtain a reverse mortgage must continue to pay home maintenance and other expenses and taxes related to the property.

“Reverse mortgages have their place, but the problem is that they're sold to people who shouldn't have them because it doesn't work for them,” estate planner and financial adviser Craig Smalley told MarketWatch. “They are for those that have little or no retirement funds, and have no heirs really to speak of.”

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For some older than age 62, a reverse mortgage is an easy financial step and can help fill the gap when retirement income is scarce. But there are many pitfalls and caveats for those seeking such a funding stream, and analysts urge caution.
retirement, reverse mortgage
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2015-31-13
Saturday, 13 June 2015 05:31 PM
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