Reverse Mortgages: Not Just for the Cash-Poor

When reverse mortgages first came out, they were mostly discussed as the answer to elderly homeowners’ cash problems¬† in cases where much of their net worth was locked up in a house that they weren’t ready to sell.

By way of a quick review, a reverse mortgage is one that’s available to homeowners who are at least age 62 and have substantial equity in their home. It allows you to receive regular payments from your lender, which you’ll repay when you leave your home, perhaps due to death, a home sale, or entering a nursing home.

In the June 2011 issue of Kiplinger‘s, however, Patricia Mertz Esswein points out in the article “Homemade Money” (which has a different title online; “New Lower Cost Reverse Mortgage Option“) that even affluent homeowners might have some good reasons to take out a reverse mortgage, for example to:

  • allow you to delay taking Social Security until you either qualify for full benefits at your normal retirement age or even greater benefits at a later age — the important thing to remember here being that once you start drawing on your Social Security benefits, you lock in your benefit rate, or
  • avoid drawing money out of investments that offer higher returns, such as a 401(k) or traditional IRA.

And new reverse mortgage options described in the article offer reduced upfront costs — unfortunately, while also reducing the amount you can borrow. The bottom line message: You’d better sh0p around.