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Jim, What Is Your Opinion of Reverse Mortgages?

Many people are surprised when I tell them that I think reverse mortgages are a great option for people in retirement.  Too many retirees today are living without enough money to enjoy their retirement, and some without the funds to even cover their medical needs.  For those with a home that is substantially paid off (at least 50% equity), the value of their home may be the key to a better retirement.

The concept of reverse mortgages is very confusing, but need not be.  A great book on this subject is Reverse Mortgages for Dummies.  A reverse mortgage allows individuals age 62 or older to annuitize the equity in their home.  Based on the value of your home, your age, and the payment schedule you select, you can begin receiving monthly income from the equity in your home (or a one time lump sum).  Additionally, you will have no mortgage payment for the rest of your life.  Another great benefit is that the income is completely tax free!  And you and your spouse can live in the home your entire lives.  Only upon the second person’s death is the home required to be sold.

Last year, I was invited to participate in a two day seminar on reverse mortgages.  I was surprised that about 1/3 of the content of the seminar was dealing with how to convince the adult children of the retiree to allow them to take out a reverse mortgage.  Yes, the adult children worried about how the reverse mortgage might affect their inheritance, become one of the major hurdles in reverse mortgage transactions.  It is true that by tapping your home equity through a reverse mortgage, you are depleting money that would be left to your heirs.  My response to that; too bad for the adult children.  Retirees should take care of their medical needs and take those few trips they have dreamed about their entire lives.  If that means a smaller inheritance for Johnny and Mary, then so be it.

Reverse mortgages are an excellent strategy to increase your income during retirement.  Here is a link to The National Reverse Mortgage Lenders Association.  The site is filled with great information and even a free calculator that you can use to learn how much you might benefit from a reverse mortgage.

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James L. Paris
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