A Hidden Retirement Tool

By Joan Gilles

The money you put down on your house plus all the mortgage payments
you make over your lifetime can really add up. This investment plus
your home's appreciated value over time can add up to a substantial
part of your wealth at retirement. For some, the equity they have in
their home represents one of their greatest assets when they retire.

But what do these people do when the have insufficient income from
other assets? In the past many retirees in this situation have been
forced to sell their home, downsize, or relocate in order to generate
a stream of income from the proceeds of the sale of their home just to
provide for their needs. Now you can tap into that wealth without
selling your home and moving out. In other words, you can receive
retirement income from your home and still live there.

Reverse Mortgage

A reverse mortgage is the opposite of an ordinary home mortgage. A
qualified mortgage provider lends you an agreed fixed amount. You can
take that in monthly income or as a line of credit available when you
need it. The money you receive and the accrued interest on that money
decrease your equity over time. Repayment of the principal and
interest is deferred usually until the last surviving borrower sells
the home or permanently vacates the property. If you are still living
in your home at the time of your death, the reverse mortgage balance
due will be levied against your estate in most circumstances. That
balance is then satisfied by the sale of the home.

The amount one receives in a reverse mortgage depends on several
factors including:

§ Your age at the time to start the reverse mortgage
§ The amount of equity you have in your home
§ The interest rates charged for the reverse mortgage
§ You closing costs when you secure the loan

Why are they becoming popular?

People are now living longer than ever before. Longevity increases the
need for money to meet living expenses. When other retirement assets
are fully depleted, a reverse mortgage can be utilized to replace
consumed assets.

On the other had, a significant reduction in purchasing power due to
inflation may also cause many to look for additional income sources.
In this case a reverse mortgage may increase income enough to enable
retirees to remain financially self-sufficient. Using a reverse
mortgage for needed home repairs or accommodations for disability can
make retirement more comfortable and allow retirees the ability to
stay in their home for a longer period.

What about taxes?

An advantage of a reverse mortgage is that it is non-taxable income
because it is considered a loan. As a result, this payment or income
stream would not generally disqualify you from or reduce government
retirement benefits such as Social Security. Keep in mind however; you
cannot deduct accruing interest on your reverse mortgage. Check with
your tax advisor about the impact of a reverse mortgage on your
particular situation.

What's the downside?

The fees associated with a reverse mortgage have been considered high
in the past. New products, active consumer advocates and more choices
have had a positive impact on the costs. Consider that the house will
not be passed on unless the reverse mortgage is paid off . Your best
bet is to shop around and compare carefully all the costs and benefits
of a reverse mortgage - just like you would with your regular
mortgage.

Protecting your heirs and your estate.

Your children, your grandchildren or your estate could be made whole
through the added benefit of life insurance. This powerful combination
can provide additional retirement income while protecting the wealth
you've worked so hard to build.

Take away wisdom.

You can maximize your retirement income, protect against inflation,
protect your wealth and allow yourself options in your retirement
living situation through the coordination of all the assets and plans
you have. A comprehensive review of your financial plan will show you
how all your assets can work together to provide for a comfort and
dignity in your later years.

Joan Gilles is a Financial Coach. She helps business owners and
professionals get really clear about what it is they want financially
and gives them a model and tools to get it. What makes her different
is she does her work without taking money out of a business or
personal pocket. Email her at jmgilles@pressenter.com or visit
http://www.joangillesfinancialcoach.com

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