Reverse-Mortgage-Truth.com

This is the third and final post in a series.

Another option is to ask your children or other relatives for money rather than get a reverse mortgage. And fortunately, they often want to help if they are able. Here are some important factors to consider.

Aside from the obvious loss of financial independence, pride of taking care of oneself and the potential creation of family conflicts, there are, in fact, hard costs to consider. If your relatives must sell some of their investments, they may owe capital gains tax and will lose the future return on those investments. If they are fortunate to make enough money from their paychecks to support you, they may be diverting income that could otherwise go into THEIR retirement accounts. Not only would they lose the future investment returns, but if their retirement account (such as a 401k) receives pre-tax money, they are losing an additional 25%-45%, depending on their income tax rate.

Finally, do not minimize the risk of spending down your savings and eliminating your financial cushion that allows you to comfortably cover the unforeseen expenses that will arise. A reverse mortgage line of credit could offer a far better financial cushion.

Using the funds that you have on hand can be a good way to accomplish your goals if those funds will last for the foreseeable future and if using them will not cost you more than would a reverse mortgage. Just be sure to add up the realistic cost of such a decision, and compare it to the other options before proceeding. Be sure to ask your lender for a reverse mortgage quote.

This is part 4 and the last post of this series.

Perhaps the senior is making ends meet, but would be borrowing on their credit cards, or from their kids, or depleting precious savings for other significant expenses such as home repairs or medical bills. In that case, a reverse mortgage home equity line of credit would provide the financial security of knowing that the funds are there when they are needed. Remember that with reverse mortgage line of credit, the money simply sits in home equity and does not begin accruing interest until it is used. Once a draw is made, there is no burden of payments or risk of rising interest rates pushing the payments sky-high as with a traditional home equity line of credit.

On the other end of the spectrum are the well-off and financially savvy. Their investment portfolios perform well and provide all the income that they need. These seniors know the power of leveraged investments and compounding returns. They might take out a reverse mortgage and invest the money where they know that they can get a rate of return that is greater than the interest rate on the reverse mortgage. Borrowing money at 6% to get a return of 8% or more makes sense every time.

The wealthy use the reverse mortgage as a prudent estate planning tool. By accessing their home equity, they are able to begin transferring more of their wealth to their heirs. Such a strategy gives them direct control over how their money is distributed, allows them to enjoy the giving process, and can dramatically reduce the estate tax burden.

A reverse mortgage should be considered by all homeowners over age 62. While not for everyone, it is a powerful financial tool that should not be dismissed without understanding how it could apply to each senior’s individual situation.