Blogs > Your Money

Dave Patterson and Erin Preston, a father-daughter team of Certified Financial Planner® licensees, provide thoughts and suggestions on a broad collection of personal finance topics.  Information provided in this BLOG is intended to be of a general nature and may not be appropriate for all situations.  Readers should consult with their own financial advisors before relying on any information contained herein.

Tuesday, July 7, 2009

Considering a Reverse Mortgage? Be VERY Careful!

The recent economic crisis has hit retirees hard, reducing the value of their investments by 25% to 30% or more. The ability to downsize their homes to reduce expenses has been made more difficult by the severe downturn in real estate prices. As a result, many are turning to reverse mortgages as a way to eliminate their mortgage payments and tap into existing home equity.

A recent Wall Street Journal article (“Seniors Drawn to Mortgages That Give Back”, May 10, 2009) stated that in March and April, the number of reverse mortgages by the government increased nearly 20% from the same period a year ago. In April there were 11,660 reverse mortgages insured by the government, the highest number for a month since the program began in 1990.

With a reverse mortgage, the bank makes payments to the homeowner instead of the homeowner paying the bank. To qualify for a reverse mortgage, you must be at least 62 years of age and have a significant amount of equity in your home. Reverse mortgages may allow a senior to pay off their mortgage and/or receive a lump sum payment or line of credit. The bank gets paid back when the homeowner dies or sells the home.

For some seniors, a reverse mortgage allows them to continue a comfortable retirement while staying in their home. Due to the high fees charged for reverse mortgages, however, we believe taking out a reverse mortgage should be a last resort for retirees. They need to take care also to watch out for unscrupulous investment advisors pushing high-fee insurance and annuity products for seniors to invest in with their reverse mortgage proceeds.


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