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    Tips for Comfortably Retiring on a Tight Income

Baby Boomers can still retire, even on a tight income, by taking steps to stretch their dollars! 

Tips, ideas and advice for making Baby Boomer retirement income go further!


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Reverse Mortgages Can Offer Benefits to 62+ Baby Boomers

For older Baby Boomers with a free and clear home mortgage or a home with substantial equity, a reverse mortgage may be the answer to enjoying extra income without having to make additional payments while also removing current mortgages.

Reverse mortgages were conceived as a means to help people in or near retirement and with limited income use the money they have put into their home to pay off debts (including traditional mortgages), cover basic monthly living expenses or pay for health care. There is no restriction on how a borrower may use their reverse mortgage proceeds. The advantages of a reverse mortgage are many:

  • You can qualify without income or credit requirements

  • Typically eliminates current mortgage payments

  • No payback required as long as you continue to live in your home

According to Wikipedia:

A reverse mortgage is a form of equity release (or lifetime mortgage). It is a loan available to home owners or home buyers over 62 years old, enabling them to access a portion of the subject home's equity. The home owners can draw the mortgage principal in a lump sum, by receiving monthly payments over a specified term or over their (joint) lifetimes, as a revolving line of credit, or some combination thereof.

Title to the property remains in the name of the homeowners, to be disposed of as they wish, encumbered only by the amount owing under the mortgage.

If a property has increased in value after a reverse mortgage is taken out, it is possible to acquire a second (or third) reverse mortgage over the increased equity in the home in some areas. However most lenders do not like to take a second or third lien position behind a reverse mortgage because its balance increases with time. It is rare to find reverse mortgages with subordinate liens behind them as a result. A reverse mortgage may be refinanced if enough equity is present in the home, and in some cases may qualify for a streamline refinance if the interest rate is reduced.

A reverse mortgage line is often recorded at a higher dollar amount than the amount of money actually disbursed at the loan closing. This recorded lien is at times misunderstood by some borrowers as being the payoff amount of the mortgage. The recorded lien works in similar fashion to a home equity line of credit where the lien represents the maximum lending limit, but the payoff is calculated based on actual disbursements plus interest owing.

There are three types of reverse mortgages: (the least expensive) single purpose reverse mortgage, HECM or Home Equity Conversion Mortgages, and private proprietary reverse mortgages. The most popular programs are the HECM loans that are backed by HUD with FHA mortgage insurance.

If youíre taking out an HECM reverse mortgage, youíre required to talk to a counselor designated by the federal government. You will find out soon enough that if you arenít careful, reverse mortgages can negatively impact your finances. Your credit consultant should be sure to point out to you all the cons, disadvantages and pitfalls of reverse mortgage loans along with all the costs and fees. Having to talk to a credit adviser can seem like a great disadvantage but in the end it will serve as benefit and can be considered a check on your list of pros.

The federal government has quoted these disadvantages and pitfalls of reverse mortgages:

  • They can affect your eligibility for another type of loan.

  • This may affect the inheritance of the borrowerís heirs.

  • The borrower could lose his or her eligibility for Medicaid and Supplementary Security Income (SSI).

Baby Boomers interested in a reverse mortgage are urged to educate themselves on the types of mortgages and payouts available, associated costs and the pros and cons of each. A good place to start is the National Reverse Mortgage Lenders Association.

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