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By Pat Gray
12/1/2012

I Don’t Need a Reverse ...
12/1/2012

Financing Your Future
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12/1/2012
I Don’t Need a Reverse Mortgage…or Do I?





By Pat Gray

When the subject of reverse mortgages come up, many people say, "I don’t need a reverse mortgage. My house is paid for and I have an IRA" (or a 401K or other similar investments.) That is when the dialogue begins.

In the distant past, few people considered reverse mortgages as any more than a last resort to save a house from foreclosure, to extinguish an existing traditional mortgage they can no longer afford, or to provide sufficient cash to live on in retirement. While those reasons certainly continue to exist and comprise the basis for the majority of reverse mortgages today, savvy seniors and many financial planners look to the reverse mortgage as an important tool in the arsenal of planning for retirement.

For many, the home is the single largest investment they have and should be considered a source of cash along with mutual funds, stocks, bonds, annuities, IRA’s, 401K’s, etc. when planning how to finance retirement. In most cases, funds in financial investment accounts will be taxed when withdrawn, causing some to have to withdraw a larger amount than they actually need to cover taxes. This, in turn, serves to deplete that investment faster. With a reverse mortgage, funds realized from the investment called "home" are tax-free, allowing other investments to remain intact, continuing to grow.

Some homeowners have always planned to leave the equity in their homes to their children, most for the money it will provide when the home is sold after the homeowners’ deaths. By using a reverse mortgage as their source of funds and leaving their other financial investments to grow, seniors may actually be leaving a larger inheritance to their children, depending, of course, on the market. (Home values, as we have seen only too well these past several years, are also subject to the whims of the market.) And, with a reverse mortgage, any equity remaining in the home upon the death of the borrowers will still be inherited by the heirs when the house is sold.