Retirement Planning: Part II

Retirement Planning: Are you ready? Part IIold_debt

There is an increasing amount of retirees considering a reverse mortgage to relieve themselves from debt and monthly mortgage payments. A reverse mortgage is: a loan that is designed for homeowners 55 years of age and older (if you have a spouse, the age qualification applies to both of you). A reverse mortgage is secured by the equity in the home, which is the portion of the home’s value that is debt-free. It allows homeowners to obtain cash, without having to sell their home. Not all lenders offer reverse mortgages.

Disadvantages of a reverse mortgage:

– Reverse mortgages are subject to higher interest rates than most other types of mortgages.

– The equity you hold in your home will decrease as the interest on your reverse mortgage accumulates over the years.

– At your death, your estate will have to repay the loan and interest in full within a limited time. The time required to settle an estate can often exceed the time allowed to repay a reverse mortgage. For full details, check with the reverse mortgage lender.

– Since the principal and interest will be repaid to the lender at your death, there will be less money in your estate to leave to your children or other heirs.

– The costs associated with a reverse mortgage are usually quite high. They can include:

– A higher interest rate than for a traditional mortgage or line of credit

– A home appraisal fee, application fee or closing fee

– A repayment penalty for selling your house or moving out within three years of obtaining a reverse mortgage

– Fees for independent legal advice.

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