Reverse Mortgages –
Wednesday, September 9, 2009 at 9:50PM
A Hidden Retirement Tool 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 many, the equity they have in their home comes to represent their greatest asset by the time they retire. But what do these people do when they have insufficient income from other assets? In the past many retirees in this situation have been forced to sell their homes, downsize, or relocate in order to generate a stream of income from the proceeds they derive from the sale of their property to provide for their needs. Now they can tap into that wealth without selling their home and moving out. You may be able to do the same. How would you like to receive retirement income from your home and still live there? Reverse mortgages can do just that The equity in your home represents a potential source of retirement income. Imagine that while living in your home you are able to open your mailbox each month and there’s a check to supplement your retirement income. Getting this money throughout the remainder of your retirement may really help you. The monthly amount you could receive depends on several factors including: • • • • What is a reverse mortgage and how does it work? A reverse mortgage is the opposite of an ordinary home mortgage. A qualified mortgage provider lends you an agreed fixed amount monthly in the form of a cash advance instead of you making monthly payments. Furthermore, you do not repay them until a future date, in most cases years or even decades later. The monthly payments and the accrued interest on the mortgage decrease your equity over time. Repayment of the mortgage principal and interest is deferred. The total loan amount (including the accumulated interest) is generally repaid when 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. Early repayment could be required, however. While there are several types of reverse mortgages, all of them may become due and payable on demand if you, their borrower, undermine the value of the property that secures the loan whether due to your actions or inaction. Some conditions of requiring accelerated repayment or default include: • • the property as required • • collateral Why are they becoming popular? People are now living longer than ever before. And their longevity is increasing the need for money to meet their living expenses. When other retirement assets are fully depleted, a reverse mortgage can be utilized to replace consumed assets. On the other hand, a significant reduction in purchasing power due to inflation may also cause many to look for additional income sources. Reverse mortgages may increase income enough in these situations to enable retirees to remain financially self sufficient. What about taxes? Another advantage of reverse mortgages is that they are considered loan advances, not taxable income. As a result, this payment stream generally would not disqualify you from or reduce government retirement benefits such as Social Security. Keep in mind, however, that you would not be able to deduct accruing interest on your reverse mortgage. But it is important for you to check with your tax advisor about the impact a reverse mortgage could have on your financial situation before taking out one of these loans. Protecting your heirs and your estate? Your children or your estate could be made whole through the added benefit permanent life insurance provides even if you receive reverse mortgage payments equal to or greater than the equity you have in your home. The combination of a reverse mortgage and permanent life insurance is a powerful one two punch that could increase your retirement income when no other options exist. Ask your LEAP Professional to show you how to coordinate your life insurance protection so you can maximize your retirement income options. Copyright © 2007 LEAP SYSTEMS, Inc. ISSN 1556-4207 PS&G Model, LEAP and LEAP SYSTEM are trademarks and service marks of LEAP SYSTEMS, Inc. User of the LEAP SYSTEM are independent practitioners and are not acting as agents, employees, or representatives of LEAP SYSTEMS, Inc. File this article under Insurance your LEAP
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