MSN Money: Reverse Mortgages to the Rescue?

Retirement accounts across the nation are suffering as a result of The Great Recession, but declining home equity, among other factors, has made reverse mortgages a “thing of the past” as a retirement option, says a recent MSN Money article.

“The truth is that reverse mortgages shouldn’t be used as a last-minute tool to fund your retirement,” the article says.

Reverse mortgages require homeowners to have equity in their homes, MSN Money points out, but those who have been planning on using a reverse loan to fund retirement could be in for a “rude awakening.”

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“The recent (and ongoing) housing crisis has left many people at or near retirement in a tough situation, with little in retirement savings and instead counting on using home equity to fund their retirement dreams via a reverse mortgage,” says the article. “But, when the equity disappeared, so did their ability to borrow against their homes for retirement.”

It’s risky to depend on home equity while planning retirement rather than creating a well-rounded plan, MSN says, pointing to those who “skipped funding their retirement accounts in favor of buying bigger homes and paying down their mortgages” during the housing bubble. This strategy, it says, “can blow up in your face.”

Additionally, the article continued, potential borrowers must consider the costs of taking out the loan, and the possibility that their heirs will need to pay it off down the road.

Read the full MSN Money article here.

Written by Alyssa Gerace

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  • One thing that the article brings out is that home equity is not static.  It goes up and down.  Pre-retirees should not count on home equity to rescue them in retirement.

    However, the article also fails to emphasize that risk is not just in home ownership but also in securities as well.  Even government securities have risk if they must be sold before maturity.

    Insurance and annuities also have some risk.

    The concept is the need for diversification to lessen the concentration of risk.  That was not emphasized in the article.   

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