March 24, 2014

Greetings! I trust that this will find you well and enjoying life.

Like you I am seeing a great deal of advertising these days about reverse mortgages. The prominent actors and politicians hired to promote them, make it all sound so easy and hype them up to appear to be such a good deal. I suspect that as boomers age more and more reverse mortgages will be played up to be a viable strategy for retirement income. It’s important to know that the banks and lending institutions that promote them are in it for profit and it can involve big profits. I consider a traditional reverse mortgage to be in most cases the very last option someone should consider, because of the cost and expense affiliated with them.

One alternative could be a private reverse mortgage agreement with a family member or close friend, in which one enters into a similar documented agreement as they would with the bank. For instance if the agreement is with ones’ child or children, they would make payments to the parent as the bank would but without all of the expense the bank incurs. Eventually they inherit the asset anyway. If necessary they might consider reducing contributions to their retirement account in order to provide the parent with the funds for living expenses, just as the bank would in the reverse mortgage arrangement. The child would inherit the house with a step up in basis (income tax free) and retain the exorbitant economic benefit that the bank would have consumed and the family given up.

As I get older I seem to be able to appreciate figures of speech I have heard all of my life. What comes to mind in this case is there is more than one way to skin a cat.

If you would care to speak about this or have questions about any financial topic don’t hesitate to contact me.

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