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Can't Downsize? Reverse Mortgages Can Assist Boomers in Need

As more and more baby boomers get older, many of them want to stay in their own homes as they age. At the same time, the value of homes keeps going up, making people’s ownership in their homes more valuable. Experts think this will make more people interested in reverse mortgages.

A recent survey found that 66% of baby boomers, who own most of the property in the country, plan to keep living in their homes as they age.

Reverse mortgages are becoming increasingly popular in today’s financial environment. Sandra Block, a Senior Editor at Kiplinger, explains that with interest rates for home equity lines of credit and loans averaging around nine percent, reverse mortgages offer retirees a more attractive alternative. Unlike other options, there are no strict rules on how homeowners can spend the money they receive from a reverse mortgage. This flexibility allows retirees to use the funds for different needs, like making their home more accessible, adding to their retirement income, or paying for long-term care.

Reverse mortgages are meant to help older homeowners turn some of the value in their homes into extra money. For more than 30 years, the Home Equity Conversion Mortgage (HECM) has been the top choice for this. With FHA’s support, there are now over 550,000HECM loans out there.

In 2024, lenders have reached a new high, lending out $25.5 billion in HECMs. That’s a big jump of 36% from the year before. It seems like 2024 might even see more loans like this.

Year

Total HECM Loans

Total HECM Loan Volume (in billions)

2022

500,000

$23.8

2023

525,000

$25.5

2024

550,000

$28.3

 

Reverse mortgages enable homeowners aged 62 and older to convert a portion of their home equity into cash without needing to move. These loans don’t require monthly mortgage payments and are repaid when the homeowner sells the home, moves out permanently, or passes away. The Home Equity Conversion Mortgage (HECM), insured by the Federal Housing Administration (FHA), is the most common type of reverse mortgage.

The benefits of reverse mortgages are clear.

They offer financial flexibility, allowing retirees to cover living expenses, medical bills, or home repairs. They also enable homeowners to stay in their cherished homes without the burden of monthly mortgage payments, and the funds received are typically tax-free.

However, it’s important to understand the potential downsides.

Reverse mortgages have fees and closing costs, which can be more expensive than those for regular mortgages. When the loan is paid back, it reduces the amount of equity left for your heirs, so it’s important to talk to your family about your plans. Homeowners also need to keep the property in good condition and pay their property taxes and insurance on time to avoid the risk of default and losing their home. Because reverse mortgages can be complicated, it’s a good idea to get advice from a trustworthy lender and a financial counselor to fully understand what you’re getting into.

Making the Decision

For those who can’t or don’t want to downsize, reverse mortgages provide a practical way to improve financial security in retirement. By considering the pros and cons and getting professional advice, retirees can make well-informed choices that fit their needs. Reverse mortgages are a great option for boomers who prefer to stay in their homes and use their home equity, helping them achieve a more comfortable and financially stable retirement.

In conclusion, while downsizing is a popular option for many retirees, it’s not the only solution. Reverse mortgages provide a viable alternative for those who wish to stay in their homes and tap into their home equity. With careful consideration and proper planning, reverse mortgages can help boomers achieve a more comfortable and financially stable retirement.

Many older Americans have lots of value tied up in their homes but not enough savings for retirement. They’re finding reverse mortgages increasingly attractive as a way to get extra income during retirement. This means more mortgage companies might start offering reverse mortgages. To handle this, they’ll need help, like from Standard Lenders. Contact us today to make everything go smooth.

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