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Your Money – Reverse Mortgages

Retirement fantasies often involve world travel or golf somewhere warm.

Unfortunately, as you approach retirement age, you may be less concerned with the fun stuff and more worried about how to afford it.

A reverse mortgage can help you meet the financial demands of retirement by letting you cash in on the value of your home.

It works like this: Qualified homeowners ages 62 or older agree to a loan using their home’s equity as collateral. A lender gives you the tax-free money in a lump sum or monthly installments over an agreed-upon term. You could also use it as credit, borrowing money when you need it.

Like a traditional mortgage, there are closing costs. But unlike a traditional mortgage, there are no monthly payments. Loan repayment is due when you sell the home or die. You continue to pay property taxes and homeowners insurance for as long as you remain in the home.

Reverse mortgages have become popular among baby boomers as they head into retirement, said Steven Vieira, operations manager for AAA Northeast Bank.

“It’s definitely something to learn about sooner rather than later,” Vieira said. “You don’t want to be in a jam where, at 78 years old, all your savings are gone, you have mounting medical bills, the house needs repairs, but you have no way of accessing the equity of your home anymore because you don’t qualify based on your income and credit situation.”

These are two ways reverse mortgages can help during retirement.

Contingency Fund

A leaky roof or a broken-down car can be tough to address on a fixed income. Not to mention astronomical medical bills. Some people use reverse mortgages to help with unforeseen expenses during retirement.

Social Security

If you delay your retirement until age 70 to receive the largest Social Security payout possible, you can use proceeds from a reverse mortgage to avoid depleting your savings.

A reverse mortgage is not for everyone. Retirees who plan to relocate or want to leave their home to heirs are probably not a good fit, Vieira said.

Talk to your family and a knowledgeable financial adviser to see if a reverse mortgage is a good option.

AAA financial experts regularly hold reverse mortgage info sessions. Go to AAA.com/Register for more.

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