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As seniors continue to live longer and desire to age in place, they may wish to consider reverse mortgages as a financial alternative to help them fill in the gaps resulting from the uncertainty of other retirement investments.
In today's troubled economic environment, estate and financial planners may want to consider several options to help seniors meet their financial needs. Reverse mortgages have become increasingly popular as a tool to supplement retirement income. Some lenders believe reverse mortgages will play a larger role in retirement planning as assets in retirement and investment accounts decline.
Since the inception of the federally insured reverse mortgage program known as the Home Equity Conversion Mortgage ("HECM") in 1 989, the number of HECM loans made has grown dramatically. In 1990, a modest 234 HECM loans were made. This number swelled to 8, 120 in 2001 and 115,176 in 2008.1
According to a recent study by the Employee Benefit Research Institute, 76% of workers expect to have the same or a higher standard of living when they retire, yet 50% of workers nearing retirement have less than $50,000 in savings and investments. Additionally, only 5% of current private sector workers have defined benefit pension plans versus 60% of such employees in 1980. 2 A reverse mortgage can be a useful tool to help seniors maintain their standard of living, keep their independence, stay financially fit, and cover routine or extraordinary expenses while living in the comfort of their own home.
What is a reverse mortgage?
A reverse mortgage loan can help seniors supplement their retirement income by tapping a portion of the equity in their home and turning it into funds that are generally taxfree.3 After paying off any existing mortgages, funds can be applied toward medical care, home improvements, or other expenses.
Seniors are not required to make reverse mortgage payments for as long as they live in the home and retain an ownership interest. Borrowers can stay in the home for as long as they wish. When the loan becomes due following a termination event (discussed later), if the borrower, the heirs, or the estate wish to sell the home, they will never owe more than its appraised value. If the borrower or the estate wishes...