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Would you reverse mortgage your home?

Apparently the view on reverse mortgages is reversing.  More seniors and baby boomers are reconsidering the idea of a reverse mortgage.

What is a reverse mortgage?

Everyone knows what a mortgage is; most of us have sweated those payments at one time or another.  A reverse mortgage (RM) is the opposite, instead of you making a mortgage payment the lender pays you a mortgage payment which you can use to pay any of your other bills. The downside of course is the lender could end up owning your home when you die.

In any case the average age of the reverse mortgagee is declining. According to the U.S. Department of Housing and Urban Development (HUD) in 1990 the average age was 77 and in 2010 it was 73.  The National Council of Aging survey found the average down to age 71 and a half.

At 62 a homeowner is eligible to take out a RM.  Of those retiring at age 62; 1 in 4 are considering a reverse mortgage in order to retire or to cancel the debt on their home.

Why are younger seniors considering an RM? 

Most 401k, 403b and other contribution style retirement plans have been devastated by the 2008 financial meltdown and during the ongoing financial crisis these plans have not recovered let alone grow.  Worse many of these retirement plans are only increasing by the additional employee contributions. 

Apparently for many the decision is to keep working or mortgage the home to retire. 

Would you mortgage your home in order to retire?  Or just keep working?

You may ask questions in the comments or contact me privately Tim Barton, ChFC

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2 Responses to Reverse Mortgages are Increasing

  1. Ray Fry on July 8, 2012 at 9:16 pm

    A few things need to be corrected. First,t he lender doesn’t own the home when you die, but the mortgage does have to be paid off within a year. Most heirs sell the house and if any money is left, the heirs keep that money. If the loan is larger than the net sales amount, the government pays the lender the remainder of the loan.
    Second, if one in four turning 62 are considering a reverse mortgage, that works out to over 900,000 possible borrowers. Since the number of reverse mortgages done in 2012 will be about 60,000, it seems highly unlikely that 900,000 are thinking about doing a reverse mortgage.

    • Avatar of Tim Barton
      Tim Barton on July 9, 2012 at 9:12 am

      Thank you for your comment Ray,
      You are correct the heirs have the right to sell the home and hopefully at that point in time the home market is favorable.
      The stat 1 in 4 considering an RM is from a Met Life survey of 62 year old people. Actually from my experience that number seems low, almost everyone I talk to who is retiring say they are “considering”; however, over my 34 years of retirement planning only a small handful of clients have taken out a reverse mortgage.
      There are no; at least I could not find them; accurate stats regarding the number of folks turning 62 each year. The closest I could find were the CDC and U.S. Census using their numbers it looks like approximately 2.7 million per year turn 62. Using the survey’s result of 1 in 4 that means 680,000 consider an RM. With your 60,000 RMs in 2012 after consideration about 1 in 10 actually do a reverse mortgage.
      If you can point me to additional studies on this subject I would be most interested.
      Thanks again.

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