The financial outlook for America’s aging population can seem pretty bleak. More than forty percent of baby boomers have no retirement savings, according to a study from the Insured Retirement Institute. Of the retirees that did manage to save, about a third of them have less than $100,000, not nearly enough to last through the retirement years.
For homeowners 62 or older a reverse mortgage may be a good option to continue their financial independence. A reverse mortgage is obtained using the available equity in the home, providing the homeowner with cash either in a lump sum or through other payment plans. A reverse mortgage also eliminates the monthly payment that is associated with a traditional mortgage. When the homeowner moves or dies the proceeds from the sale of the home are used to pay off the reverse mortgage balance.
Based on individual circumstances a reverse mortgage may not be right for everyone, so anyone considering it should do their homework first before deciding if this is something that might work for them.
Some disadvantages of a reverse mortgage are as follows:
- Because no monthly payments are made the loan balance increases while equity decreases. Equity in the home is reduced every month that there is a reverse mortgage balance outstanding.
- If the homeowner plans to leave the property to someone in the family, there will be less equity for them as the reverse mortgage balance grows.
- If the homeowner receives Federal assistance the amount received from a reverse mortgage could have an effect on the future receipt of these benefits.
- Fees are high compared with traditional mortgages. Reverse mortgage fees are negotiable, so an individual should shop around to make sure that what they are being charged is reasonable.