It is no secret that baby boomers are underfunded for their upcoming retirement needs, but a reverse mortgage could be a viable option to supplement retirement income, according to a recent article by U.S. News & World Report.
One area that many people aren’t accounting for as they age is their life expectancy. Many underestimate how long they will live and how much health care costs will be as they age, the article points out.
“Although we are living longer, we are also experiencing more health issues with our increased life expectancy,” David W. Johnson, associate professor of finance at the John E. Simon School of Business at Maryville University in St. Louis, said in the article. “The typical 65-year-old couple will need $305,000 to cover out-of-pocket expenses. Increased life expectancy and unexpected expenses increase the possibility of outliving your assets.”
Reverse mortgages could be a very helpful tool in retirement and more specifically, the Home Equity Conversion Mortgage (HECM). A HECM may be a safer option because it is regulated by the government, but there are still differences among companies selling the HECM product, the article points out.
The basics of a HECM loan are discussed throughout the article, including the fact that borrowers must be at least 62 years old to be eligible and that the loan will become due and payable when the last remaining borrower permanently leaves the home.
Another point consumers should be aware of is how much to expect to receive from a reverse mortgage, assuming they qualify.
“Depending on their age, homeowners typically can tap between 50% and 75% of the home’s appraised value, with a maximum loan limit of $625,500,” Tom Dickson, national leader of the financial advisor channel at Reverse Mortgage Funding, said in the article. “The older the borrower and the lower the interest rate, the higher the available loan amount.”
There are many ways to tap into the funds, such as a HECM line of credit, but overall, education is the most important aspect of the program. Borrowers need to educate themselves before signing anything and should shop around, because even though there are about 10 companies that do most of the business in the industry, no two HECM lenders are the same, the article points out.
Read the full article from U.S. News & World Report.
Written by Alana Stramowski