Note: This is a guest post from Barbara Stucki, Vice President, Home Equity, National Council on Aging.
Most Americans have realized that today’s retirement isn’t what their parents or grandparents had.
Thanks to the Great Recession, millions of older adults are entering retirement with fewer savings, no pensions and skyrocketing health care costs. Others are being forced into retirement before they’re ready thanks to job loss and layoffs. The bottom line is that people are living longer in retirement with less income. According to the Institute on Assets & Social Policy, the number of seniors at risk of outliving their resources has increased by nearly 2 million in just four years. With limited financial options, many older adults are turning to that tried-and-true American asset — their home.
A recent study by MetLife and the National Council on Aging found that 35% of households aged 62 and older have a home loan, many of them reverse mortgages. But is it a good idea to use your home as a source of cash in your retirement? Without a financial game plan to manage this asset, older homeowners may be putting their finances at further risk. Also known as Home Equity Conversion Mortgages (HECMs), reverse mortgages can be a useful financial tool, but they’re not for everyone. Before considering one of these loans, it pays to know the myths and facts.
Myth #1: A reverse mortgage works the same as any other type of home loan.
Truth: A reverse mortgage is a special type of loan for homeowners aged 62 and older that lets you convert a portion of the equity in your home into cash. But unlike a traditional home equity loan or second mortgage, you don’t have to repay the loan until you either no longer live in the home as your principal residence or you fail to meet the obligations of the mortgage. Taking out a reverse mortgage is a big decision, since you may not be able to get out of this loan without selling your home to pay off the debt. You also need to carefully consider your options to avoid using up all the equity you have built up in your house. Learn more about reverse mortgages with NCOA’s free consumer guide.
Photo courtesy of the National Council on Aging.
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