Supplementing Retirement with a Reverse Mortgage

Supplementing retirement is a major concern. The average person lost 45 percent of his investment portfolio during the Great Recession of 2008 – an amount high enough that 100% recovery, let alone earn the return expected, is unlikely before retirement. Combine this with the fact that Social Security benefits are likely to decrease in the coming years as the country struggles to afford an aging population, and the solution is clear: you need a way to supplement your retirement.

While there are several options for supplementing retirement, none costs you less upfront than a reverse mortgage. A reverse mortgage is just like taking a loan off the equity in your home but, instead of you receiving a bulk amount, disbursements are metered out. Here are some important facts about reverse mortgages:

1.  With a reverse mortgage, you get a monthly check for the rest of your life or a specific period (e.g. 30 years), depending on which type of reverse mortgage you choose.

2.  If you choose a specific period, even if you outlive that time, a reverse mortgage allows you to remain in the property so long as you maintain home insurance and keep the property taxes current.

3.  The amount you receive in a reverse mortgage will, of course, depend on the value of your home.

4.  If you pass away before the equity has been exhausted, your heirs will have the option to receive the remaining equity in monetary form or pay back the disbursements you have received and keep the property.

5.  You must own your home outright in order to qualify for a reverse mortgage, and it must be your primary residence.

6.  There are also various costs that must be accounted for in a reverse mortgage.

7.  You will have to pay an appraisal fee in order to verify the value of your home. Fees can be as high as $500 and could need to be paid upfront (not common, but it happens).

8.  There is a registration fee to consider as well. The registration fee is usually listed at 2% of the appraised value of the home, up to $200,000, plus an additional 1% on any value above $200,000. This fee is almost always rolled into the reverse mortgage.

9.  Closing costs are also an issue. They are usually less than $2,000 and include the cost of your credit report, title insurance, recording fee, flood certification, escrow fees, pest surveys, etc. Exact closing costs will vary somewhat, depending on your reverse mortgage provider and the area in which you live.

10.  Mortgage insurance may also add heavily to the cost of a reverse mortgage. Mortgage insurance costs 2% of the value of the property upfront, plus an additional 0.5% of the property value every year thereafter. Whether you have to pay this separately or it is rolled into your reverse mortgage will depend on your reverse mortgage provider.

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