Baby boomers reverse their mortgages
What happens when the high flying baby boomers start to retire and their savings, pensions, 401k and home values are not exactly what they anticipated just a few years ago? Some of the 70 million baby boomers are going to start thinking outside of the retirement box, and many of them will inevitably look towards reverse mortgages to fulfill their retirement dreams.
I’ve written before about reverse mortgages as a road to allow seniors the ability to remain in their homes as their expenses to maintain the home increase. Reverse mortgages were always meant to be just one of the options available to retirees in planning their future. However, in the face of our national economic downturn and the inability of many retirees or about to be retirees to sell their homes, reverse mortgages have taken on a new life.
Just to recap, a reverse mortgage is essentially a cash advance on the equity in your home. The advance is repaid only when you sell your home or die. Loans are available to those 62 and over, if the home ends up declining in value the lender assumes the responsibility and if there is any equity left when the home is sold the owner or their heirs receive the difference. Funds are paid through a variety of options ranging from monthly payments to a lump sum or lines of credit. If you decided on a reverse mortgage you will be required to meet with a HUD approved counselor.
In February a provision in the economic stimulus package raised the eligible home value limit from $417,000 to $625,500 for reverse mortgages. Since then the number of reverse mortgage originations jumped 10 percent compared with the same period last year. Industry experts predict reverse mortgages will become more and more popular among baby boomers as they attempt to retire with reduced nest eggs. But is this type of loan the way to finance your golden years?
AARP has tackled the pros and cons of this question on their website with some very informative information including a reverse mortgage calculator. They boil it down to five questions you need to ask yourself before considering a reverse mortgage:
Do you really need a reverse mortgage? Do you need the funds to maintain your current lifestyle, or do you want to travel around the world, or worse, invest the money?
Can you afford it? The loans are expensive loaded up with compounded monthly interest and high up-front costs.
Can you afford to start using up your home equity now? A good question for the "I want it now" baby boomers who want to retire at a young age; you could run out of money.
Do you have less costly options? Look for another way, leave reverse mortgages as your ace in the hole of finance.
Do you fully understand how these loans work? Complicated doesn’t even begin to describe reverse mortgage programs; unless you’re a Philadelphia lawyer, you’ll need one.
Once again the baby boomers are in a position to move financial markets and trends. If they don’t have the money, they’ll turn over every rock to find it; let’s hope they find enough cash under a few of those rocks to keep them going.