How Reverse Mortgages Can Fill the Retirement Income Gap

Who qualifies, and how much can be borrowed?

By Lee Barney | April 04, 2017
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Reverse mortgages make sense for retirees who wish to remain in their home, who need some additional income and who are not concerned about leaving the equity in their home to their heirs, says Wade Pfau, professor of retirement income at The American College of Financial Services in Bryn Mawr, Pennsylvania.

“It can be an effective part of a retirement income plan, but it is going to have a bigger impact for the middle class or the mass affluent because the reverse mortgage is calculated only on the first $636,150 value of the home,” Pfau says.

There are some conditions that have to be met before a person or a couple can qualify for a reverse mortgage, says Steven Klein, mortgage director at AmCap Mortgage in Greenville, South Carolina. At least one of the borrowers has to be 62 or older, and it must be their primary residence, Klein says. It needs to be a single family home, or a Federal Housing Authority-approved condominium, townhome or mobile home, Klein says.

In addition, if the borrower has an existing balance, they must use whatever amount that is from the reverse mortgage to pay it off completely, Pfau says. For example, “If I still have a $100,000 mortgage, and the reverse mortgage gives me $300,000, I would have to pay that off immediately and be left with $200,000,” he says.

Furthermore, the borrower must maintain the property in good order and keep up with their real estate taxes and insurance, notes Tim Hewitt, senior wealth advisor at Wiley Group in Conshohocken, Pennsylvania.

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