Boomer Finance Expert: Review Your Income Options Carefully For Retirement
From Lisa Holton, 7/7/2011 3:46:51 PM
The U.S. Census predicts that the average U.S. life expectancy will go from a 1993 level of 76 years to 82.6 years by 2050. Conversationally, you hear that many of us will live past 85 or 90.
Obviously longer life is good, if those years are healthy and active. But how good is it for your money? As always, that depends on you.
Widening life expectancy is particularly relevant given investment conditions in general – you don’t want to outlive your money. That’s why the announcement last month by Bank of America and Wells Fargo that they’re exiting the reverse mortgage business is worthy of attention. While a follow-up New York Times story says the exit of these major banks won’t likely mean the end of these products – which allow seniors to tap equity in their homes in a lump sum, a series of monthly payments or a line of credit – Boomers should think carefully about how they’ll build and spend assets in retirement.
Reverse mortgages, like the rest of the housing and mortgage industry, are facing uncertain economic conditions for at least a few more years. These particular products are different than conventional mortgages and therefore have their own unique requirements. Some seniors have faced foreclosure if they failed to keep up the properties or pay their taxes on time. But other problems have surfaced as well. The U.S. Department of Housing and Urban Development (HUD) is already facing a lawsuit from surviving spouses of reverse mortgage borrowers facing foreclosure because, among other things, they were not listed as original borrowers on the reverse mortgage and could not assume the original borrower’s arrangement.
What does this mean for Boomers looking ahead to retirement? First, that the best source of retirement cash always involves money that you invest and control, and that reverse mortgages, like any debt instrument, should be viewed as a last-resort income option that needs to be examined very carefully.
Before you attempt a reverse mortgage, here are some basic things you should do:
Get solid financial, estate and tax advice: It’s important to know how reverse mortgages are different from conventional second mortgages and home equity loans or lines of credit. Space prevents a lengthy discussion here of how reverse mortgages work and indeed, they can be complicated. So start with basic reverse mortgage information on HUD’s website as well as the Federal Trade Commission’s website. Then move on to a qualified financial planner, tax expert or estate planner who can assess your personal financial circumstances to determine whether this option is right for you.
Ask about setup, appraisal and other fees: Because reverse mortgages are not conventional home loans, most require substantial setup fees that are rolled into the initial loan balance and cut the ultimate amount of money available to you. Investigate whether these costs are worth it.
Ask what could happen if the borrowing spouse dies: If you’re not 62 years old, you can’t qualify for a reverse mortgage, so many reverse mortgages are not held jointly if there is a younger spouse. If the borrowing spouse dies, the house may need to be sold or refinanced because the other spouse won’t be allowed to assume the reverse mortgage – at least under current rules.
