Reverse Mortgages Are Becoming Popular With Seniors.

 

By Jon Flynn

 

Growing up as kid in the seventies, I can remember playing with my LEGO’s on the floor, while my father watched his favorite television show on our old Zenith television.  The show was “The Rockford Files” starring James Garner.  It ranked high on the ratings charts for many years, during which time Jim Rockford became America’s favorite private eye.  Back then the show was especially popular among thirty to fifty year olds.  Believe or not that same group is in retirement, and hoping to capitalize on Garner’s popularity among this aging audience. Now a large company has asked  “Ol’ Jimbo” to stand up as their trusted pitchman.  What’s he promoting, you ask?  The answer is…Reverse Mortgages, and they’re very quickly becoming big business in America. 

 

Since Reverse Mortgages are relatively new, they are often misunderstood.  This is why “trusted” celebrities like James Garner are being asked to provide somewhat of an endorsement.  The Reverse Mortgage industry is hoping that such endorsements can help bring some credibility to this fast growing product.

 

Let’s take a look at this potentially helpful product.

 

We are all familiar with a how a traditional “forward” mortgage works.  We borrow money and then pay it back over time based on specific predefined terms set out by the lender.  Reverse Mortgages are different in that they are essentially a loan in reverse.  They allow retirees over age 62 the ability to generate a substantial amount of tax-advantaged income by tapping into one of their largest assets – the equity in their home.  In exchange for converting part of your home’s equity into a loan, you’ll receive payments generally tax-free, without having to sell your home or transfer the title.  The principal, interest, and fees generally need to be repaid only when the last surviving borrower permanently moves out of the home or dies.  This means you can live in your home even if the equity runs out. 

 

A simple analogy would be to imagine a bag of potato chips as your home’s equity.  Over time you eat one chip at a time. The chips are the payments being sent to you.  When you pass away you still own the bag of chips, but you’ll only be able to pass along as an inheritance whatever you haven’t consumed. The great thing about it is that even if the bag becomes empty, meaning your equity runs out, you still continue to receive the chips.

 

This can be a terrific solution for many retirees.  But why am I only hearing about them now?  Well, previous generations didn’t have many of the same issues as seniors today, the primary one being longevity.  In many cases, a retiree savings just won’t get them all the way through a long retirement.  So Reverse Mortgages appeared on the scene to help seniors squeeze out a little more income.

 

Like all things in life they can be right for some and wrong for others.   I usually only recommend them after all other alternatives have been carefully examined.  You can receive free information about Reverse Mortgages by calling AARP at: 800-209-8085.

 

Everybody situation is different and arriving at solutions can get complicated.  So always consult with financial, legal, and tax professionals before making any decisions.

 

 

Jon Flynn is a Certified Financial Planner ^TM and owner of Flynn Financial in Eynon. He is a Representative of Securities America, Inc., Member FINRA/SIPC and of Securities America Advisors, Inc. Flynn Financial and Securities America are unaffiliated.   Mr. Flynn can be reached at 570-876-5015.