Reverse Mortgages for more Income in Retirement

Seniors who are in a cash flow bind because of increasing expenses or a drop in their investment income may want to look into tapping one of their most valuable assets: their homestead.

There are several ways to get equity out of your home. You could sell it, but you would have to move. Or you could take out a loan against it, which would leave you with payments to make each month. The third choice is a reverse mortgage.

A reverse mortgage is a loan that lets homeowners over 62 years old convert the equity in their house into cash, yet allows them to still live there. The lender will give the payout all at once, as a fixed monthly income (up to lifetime), as a line of credit to use when you choose, or as a combination of these. The money will have to be paid back with interest when you die, sell the home, or permanently move out. But you or your heirs have the option to pay off the reverse mortgage at any time and keep the house. And the amount that must be repaid can never exceed the value of the home. Furthermore, if the sales price exceeds the amount owed, the excess will go to you or your estate.

There is no income or medical requirement to qualify for a reverse mortgage. And you can use the money any way you wish, for example, to pay daily living costs, medical bills, or travel expenses.

The size of the reverse mortgage you could obtain will depend on several factors, including your age, the value of your home, and current interest rates. The money you receive will be tax-free and will not affect your Social Security or Medicare benefits.

Take for example, Bill and Marge, ages 65 and 63 respectively. They own their home, which is valued at $250,000. Bill had to close his part-time consulting business because of health problems, and the loss of this income forced them to cancel a once-in-a-lifetime cruise that they had been planning for the past year. A reverse mortgage offered Bill and Marge the following options (from http://www.rmaarp.com/estimates.htm):

Single lump sum or line of credit - $140,285
Lifetime monthly income - $784
They chose the line of credit, took out enough to pay for their cruise, and will keep the balance available for another vacation, for an emergency, or to supplement their income in the future.

More information and a list of reverse mortgage lenders in your state are available from the National Reverse Mortgage Lenders Association. Or, you can get assistance from a local Certified retirement Financial Advisor. See directory at http://www.retirement-financial-advisor.com.