Money for Life At Home

08/11/2008 12:00 am EST

Focus: MARKETS

Terry Savage

Author, The Savage Truth on Money

Terry Savage says reverse mortgages can help seniors tap into the value of their homes while they still live there. 

If you’re a Baby Boomer and lucky enough to still have your parents, you are likely to face a big question in the years ahead: will you help pay their expenses as they outlive their money?

And if you’re a senior, you know there’s a similar question on your mind: will you have to depend on your children to help pay your expenses?

There is a possible solution to this problem—and you’ll find it right at home! But it will take a willingness to look at the facts and overcome emotions.

The new housing bill just gave a boost to reverse mortgages, making them easier to find, allowing more money to be withdrawn, and setting limits on costs.

Basically, a reverse mortgage is a way to turn your home into your pension—through a tax-free check a month for life, or a lump sum, or a combination of both.

They are available to seniors, age 62 and older, who have little or no remaining mortgage obligation. A reverse mortgage makes sense if you plan to stay in the home for at least several years but need more tax-free income that can be spent for anything, including property taxes, renovations, or everyday expenses.

The loan does not have to be repaid until the home is sold—either when the senior moves, or dies. Any remaining equity—after expenses and interest—belongs to the senior, or his heirs.

Best of all, there is no way you can owe more than the house is worth. And the senior(s) can never be forced out of their home. The home remains in the senior’s name, and that monthly check will keep coming as long as he or she lives there.

But the seniors who have most to gain from this strategy, are least willing to take money out of their home. After all, they spent a lifetime paying down that mortgage. The emotional issue is realizing that this is not “borrowing”;  it’s withdrawing equity that already belongs to you!

How much money could you get in a reverse mortgage? That depends on the value of the home, the current level of interest rates, and the age of the senior. The older you are when you start the process, the more money you will receive either in a monthly check, or a lump sum.

To get a good idea of the money you could receive from one of the many reverse mortgage products, there’s a unique calculator at www.GoldenGateway.com.

It will not only compare the products for which you qualify, but will project how much equity will remain in the home in ten, 15, or 20 years—based on your withdrawals, and the potential appreciation of the home. (Golden Gateway Financial is a provider of reverse mortgages.)

So, now, the big question is:  Are you brave enough to bring up the one financial discussion every adult and senior parent hope to avoid—the question about “running out of money.”?  

I did. And now I get the pleasure out of watching my father live independently, spending the money that his house is paying to him from his reverse mortgage.

What do you think? Please share your thoughts about and experiences with reverse mortgages by writing a comment.

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