Will Reverse Mortgages Rescue Baby Boomers?
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A new brief released by the [tag]Center for Retirement Research[/tag] at [tag]Boston College[/tag] examines the extent to which [tag]baby boomer[/tag] homeowners can count on tapping home equity wealth through reverse mortgages to support [tag]retirement[/tag] living expenses.
The report notes that two major factors that go into the [tag]reverse mortgage[/tag] calculus - interest rates and home values - have been very favorable in recent years. Yet, even with this advantage, most reverse mortgage borrowers can only get access to about 50% to 60% percent of their home’s value through a reverse mortgage. Enough to provide a siginificant supplement to [tag]retirement income[/tag], but not enough to ensure a secure retirement:
As an example, consider a 65-year-old homeowner with an income of $50,000 and a home worth $200,000.9 At today�s interest rates, this homeowner could borrow approximately 49 percent of the home�s value � about $98,000 � a figure that is net of closing and loan servicing costs of $14,907. If this household took its reverse mortgage in the form of a lifetime income, the monthly payment would be about $600 (or $7,200 annually). This amount could significantly improve a household�s standard of living by supplementing Social Security, pension income, and other financial assets. But, by itself, a reverse mortgage does not guarantee retirement security.
The paper also provides an important caution for baby boomers whose [tag]retirement planning[/tag] may include a future reverse mortage. Interest rates alone can have a major impact on the percentage of home value available for borrowing:
If interest rates increase, the percentage decreases…the variation in the percentage that can be borrowed has been quite dramatic � ranging from 5 percent in 1981 to 51 percent in 2002 for a household aged 65. Interest rates today are close to historic lows, and even increases that are modest by historical standards could substantially reduce the amount that a household
can borrow.
(A footnote to the report notes that the impact of higher interest rates can be moderated somewhat by taking payments under the tenure lifetime income option rather than as a lump sum or the line of credit.)
At only three pages, the report provides a lot of good, free information for anyone considering a reverse mortgage - now or as part of their future plans. Here’s the link to access Will Reverse Mortgages Rescue Baby the Boomers?
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