There are swarms of Baby Boomers retiring and on the verge if retiring, but with savings low and other investments not bringing in much to put toward retirement, boomers are looking for alternatives. Reverse mortgages are one solution they are starting to consider more than previously due to the large amount of equity in their homes, according to a recent article from U.S. News & World Report.
A reverse mortgage can be used instead of a traditional home equity line of credit in certain cases and can be more flexible, because with a reverse mortgage the borrower has the option to repay the loan, David Peskin, president of Reverse Mortgage Funding, explained in the article.
There are different perspectives from various financial experts on how to use a reverse mortgage in retirement but there are some facts that everyone should be aware of before taking the leap into a reverse mortgage, U.S. News writes.
Many people are still using a reverse mortgage as a last resort as a way to stay in their home when they’ve run out of funds elsewhere.
“It makes sense if you need the money and have no other sources to stream it from. You have to take care of No. 1, that’s you,” Michael Foguth, founder of Foguth Financial Group in Brighton, Mich., said in the article.
Another thing that potential borrowers should be aware of is that interest rates and closing costs for reverse mortgages can be higher than a traditional 30-year fixed rate mortgage, the article explains. The percentages may actually be pretty close, but the amount the borrower will pay in interest can vary widely.
A perk when using a reverse mortgage is that borrowers don’t have to make monthly interest payments on the loan or on their home, the article notes.
“What makes a reverse mortgage appealing is it doesn’t have to be paid back, which is why many homeowners use them as last resort for income,” the article writes. Though, this is statement is not exactly true, since technically borrowers do need to pay back the loan; but they generally do so with the sale of their home.
The loan is also non-recourse, which means even if the home value drops, neither the homeowner nor the estate is responsible for the difference. But borrowers also need to keep in mind they will still be required to keep up with other payments on the home.
“Even if you do the reverse mortgage, you still need to pay property taxes and you must maintain the property, otherwise (the bank) can take the house,” Ash Toumayants, founder of Strong Tower Associates, said in the article.
“You can’t get a home equity loan for a kitchen, that’s over because most of the time there’s not enough money. Those are big concerns,” Toumayants added. “It eliminates flexibility and choice, so you can’t, say go live with the kids (and keep your equity). It’s a privilege to have choice and flexibility. That’s what being wealthy means.”
Read the full article on U.S. News & World Report
Written by Alana Stramowski