Reverse Mortgages
Moderator: Global Moderator
Reverse Mortgages
How do you feel about reverse mortgages in a situation where there is no concern about heirs and one is entering retirement in excellent health? Am I correct that this is tax free income?
Re: Reverse Mortgages
Does a reverse mortgage keep paying until you pass away, or do the monthly payments run out in 30 years or so and they take the house? I suppose the only risk might be that you live too long and get kicked out of your house. The bank might be taking a significant risk that you wouldn't maintain the house very well, so I would imagine they charge a premium for that risk.Reub wrote: How do you feel about reverse mortgages in a situation where there is no concern about heirs and one is entering retirement in excellent health? Am I correct that this is tax free income?
All that being said, if it makes sense for you and you have no heirs, give it a shot. It sounds like free money.
"I came here for financial advice, but I've ended up with a bunch of shave soaps and apparently am about to start eating sardines. Not that I'm complaining, of course." -ZedThou
Re: Reverse Mortgages
Scott Burns (of AssetBuilder) posted an article recently that got me to thinking about them:
http://assetbuilder.com/blogs/scott_bur ... -come.aspx
In the article he cites a published paper that looked at the best ways to use a reverse mortgage. The recommendation was to get one early in retirement, and use the funds to boost the probability that a portfolio will survive during regular withdrawals. One approach mentioned was to draw against the reverse mortgage after down years in the portfolio, and draw from the portfolio when it was doing well, kind of like a line of credit you do not have to repay (until you leave the house or the planet). Another approach was to purchase a fixed annuity with the mortgage amount and use that to supplement the retirement income stream.
The paper goes on to emphasize that it is better to do this early rather than late in retirement, giving your portfolio more time to grow with less disturbance from withdrawals.
You get to take out a certain percentage of your equity, either in the form of a lump sum, or an income stream (as in a fixed annuity) or for some types of mortgages, like a line of credit. The mortgage is repaid when the last resident of the house stops living there. The up front costs can be significant, because part of the the deal is insurance to the lender against the risk that the house will not be worth what is owed at the end. In that event the lender and the insurance company take the hit.
You have to be 65 to get a reverse mortgage. If you want to stay in your house, and your potential heirs are not a problem, it seems to have some advantages. If you are ready to downsize, or change to renting, then it is better to just sell the house and move on. My wife and I really love where we live, and assuming we can still take care of the property as we get older, it may be a good deal.
http://assetbuilder.com/blogs/scott_bur ... -come.aspx
In the article he cites a published paper that looked at the best ways to use a reverse mortgage. The recommendation was to get one early in retirement, and use the funds to boost the probability that a portfolio will survive during regular withdrawals. One approach mentioned was to draw against the reverse mortgage after down years in the portfolio, and draw from the portfolio when it was doing well, kind of like a line of credit you do not have to repay (until you leave the house or the planet). Another approach was to purchase a fixed annuity with the mortgage amount and use that to supplement the retirement income stream.
The paper goes on to emphasize that it is better to do this early rather than late in retirement, giving your portfolio more time to grow with less disturbance from withdrawals.
You get to take out a certain percentage of your equity, either in the form of a lump sum, or an income stream (as in a fixed annuity) or for some types of mortgages, like a line of credit. The mortgage is repaid when the last resident of the house stops living there. The up front costs can be significant, because part of the the deal is insurance to the lender against the risk that the house will not be worth what is owed at the end. In that event the lender and the insurance company take the hit.
You have to be 65 to get a reverse mortgage. If you want to stay in your house, and your potential heirs are not a problem, it seems to have some advantages. If you are ready to downsize, or change to renting, then it is better to just sell the house and move on. My wife and I really love where we live, and assuming we can still take care of the property as we get older, it may be a good deal.
Steve G