Here's our next tip from a Kiplinger's article giving seven ideas for maximizing retirement savings:
Tip #6: Retire on the house
John and Marie Evans of St. Louis promised one another that they would live out their retirement years in the house that they bought in 1950. "We made a pact that we would never separate," says John, 80, a retired photographer. But after Marie, 79, suffered a stroke two years ago and required a walker and a wheelchair, "we needed money to make the bathroom big enough to get her in and out." Struggling on a fixed income, the couple solved their cash problem by taking a reverse mortgage, which let them borrow against their home equity and forgo repayment as long as they stay in the house.
Once relatively rare, the number of such backward-looking loans has increased fivefold since 2001, according to the National Reverse Mortgage Lenders Association. "The confluence of historically high home values and historically low interest rates means that people are able to take more equity out of their homes," says Peter Bell, president of the group. And rather than resisting the idea, "boomers are helping their parents get the loans," says Bronwyn Belling, of AARP.
To qualify for a reverse mortgage, you must be at least 62 and live in the house as your principal residence. The loan, including interest, comes due only when you die or move from your home, at which point the proceeds from the sale can be used to pay off the balance. You or your heirs get to keep whatever equity has built up since you took out the mortgage. If the value of the house falls below the loan amount, the lender absorbs the difference.
Don't expect to pull every last coin out of the equity treasure chest. The amount you get depends on your age, local housing costs, interest rates -- which adjust monthly or yearly -- and the type of payout you choose. (For estimates of what you can expect, go to www.reversemortgage.org). Figure on getting no more than about 40% to 60% of the equity in your house. "Banks are really conservative about how much they'll allow," says Rick Van Benschoten, of Lenox Advisors, a financial-services firm. "If the house plummets in price, they're left holding the bag."
This is not a bad option for people with relatively few options available, but it's not my favorite. I'd look at all my other options before I made the decision to go for one of these loans.
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