The Reverse Mortgage Nest Egg

24 Jan

According to CBS News MoneyWatch, Americans aged 62 and older had accumulated $3.19 trillion in home equity by the end of the third quarter of 2011, according to data recently released by the National Reverse Mortgage Lenders Association (NRMLA). During the same quarter, home equity increased by $46 billion, reflecting stabilization and improvement in home prices. The $3.19 trillion is the net result of a $4.2 trillion increase in aggregate senior housing values and a mortgage debt of $1.02 trillion.

Reverse mortgages are one way to use your home equity in retirement. You can borrow against the equity in your home without having to make monthly payments as required when you have a traditional mortgage or home equity loan. Under a reverse mortgage, funds are advanced to you, and interest accrues on this balance. The outstanding balance isn’t repaid until you leave the home, sell it or pass away. You can take loan proceeds as a lump sum at loan origination, establish a line of credit or request fixed monthly payments for as long as you continue to live in your home.

According to the NRMLA, 99 percent of the reverse mortgages offered in America are home equity conversion mortgages (HECM) that are insured by the U.S. Department of Housing and Urban Development (HUD). To date, more than 725,000 senior households have utilized an HECM.  

Possible uses of a reverse mortgage include: 

— To pay for high medical or long-term care bills
— To pay for needed repairs on your home
— To provide a monthly payment to supplement your retirement income
— To buy a new home

Here’s one example of how a reverse mortgage might work, according to an online calculator offered by the NRMLA. A 70-year-old couple with a paid-for home worth $300,000 could get a monthly payment of $986 for as long as they live in the home or a single sum payment of $172,564.  The monthly income shown by this example would certainly help supplement Social Security and other retirement income.


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