Inman: Keep Savings Safe with a Reverse Mortgage

Settling a mortgage debt can cause a number of questions on how to tackle payments. Rather than let the mortgage “ride” and deplete whatever savings are left in one’s account, a reverse mortgage might be the answer to help retain some of those retirement funds, suggests the Mortgage Professor in an article from Inman.

Fielding a question from one distressed homeowner who is not sure how to approach a looming mortgage, the Mortgage Professor Jack Guttentag proposes three plausible options borrowers have when working toward settling their mortgages.

The third of which, the reverse mortgage, will provide homeowners with more spendable funds during retirement without borrowers having to worry about exhausting their savings. 

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Inman writes:

Under option 3, your mortgage debt rises over time, but unlike your current mortgage debt, which must be repaid on schedule, HECM mortgage debt need not be repaid so long as you live in the house. In addition, you have a credit line that grows over time and can be drawn on to increase your spendable funds.

Your debt and credit line increase at the same rate. Assuming continuation of the current interest rate, your initial debt of $77,000 will reach $111,500 after 10 years, while your initial credit line of $82,250 will grow to $119,100.

While interest rates on ARMs will probably rise at some point during the next 10 years, the impact on your debt and your unused credit line will be the same. If you don’t draw on the line during that period, it will be larger than your debt no matter what happens to interest rates. 

Although the reverse mortgage option will give borrowers more spendable funds than letting the mortgage “ride” or paying off the mortgage from savings, Guttentag warns that HECMs will leave homeowners with smaller estates. 

Read the full article from Inman here.

Written by Jason Oliva

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