Month: October 2010

GUEST POST BY SEAN KELLY

Are you a senior citizen that is struggling to cope with your monthly expenditure and bills due to a decrease in income? Or perhaps you know a senior citizen who could be in this predicament? If yes is your answer, one solution that you might want to consider is the reverse mortgage option. Reverse mortgage may be a foreign term to many, but it is one that may help eliminate all your cash flow complications in the later portion of your life, provided you do it right. Many senior citizens have utilized reverse mortgage as a valuable and effective tool to supplement retirement incomes, and you could be one of them as well!

Nevertheless, you need to be confident that you first qualify for this solution, and that the reverse mortgage process is the option that you want to undertake to solve your cash woes. Senior reverse mortgage is basically a special loan that is only available to seniors against the equity of a home. The amount of equity in the home that you live in is converted into cash that would then be paid to you by a lender. The method of payment varies in accordance to your preference; you could opt for a lump sum payment, or the more common option of monthly payments. You could also opt to transform the equity into a line of credit that you could withdraw at any time convenient to you.

It is advisable only to consider this option if you have completely paid off your home, or you only have a small balance that you owe to your lender when you consider reverse mortgage. To qualify in terms of legality, you need to be at least 62 years old to be able to take advantage of this opportunity. How much you can borrow is determined by factors such as your age, how much your home is actually worth and the current interest rate to name a few.

Is it advisable to consider reverse mortgages for seniors? Let us look at the benefits and drawbacks of this solution first before we draw any conclusion, starting with the advantages. If you opt for the monthly payment option, you practically enhance your monthly cash flow immediately to supplement your current income. And if you have a traditional mortgage left that you have not paid off, you could probably settle that loan with the proceeds from your reverse mortgage.

In accordance to the rules of reverse mortgage, you do not have to repay the money to your lender as long as you continue to physically live in the home. Your payments are postponed until you either pass away, or you sell the home to another party. You would also probably have to repay your lender if you fail to live in your home for a year at a stretch. The lender would usually not question you about what you are about to do with the cash that you obtain, thus you are free to spend it as you see appropriate. The senior would continue to keep ownership of the home as well.

On the other hand, if you are looking to move out of your current home in the near future, the option of reverse mortgage might not be too appealing to you. This is due to the fact that you would have to repay the amount to your lender once you move out. Closing costs attached to reverse mortgages are considerably high as well, thus you might want to reconsider this option if you are planning to move out of your home in the next couple of years. And it is definitely not advisable if you are planning to invest the amount that you obtain from reverse mortgage into a risky investment venture. The loan amount is usually only a portion of the value of the home, thus you do not have the guarantee of being able to utilize all the equity that you own within the home.

In a world where pensions and social security allowances no longer support a senior citizen’s daily expenditure, the option of reverse mortgages must certainly be seriously considered.

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Investopedia has a great short article on 7 tax savings tips for 2011. While I typically spend my time on this site discussing how to increase your income by buying good stocks and understanding how to invest your money, paying attention to your tax bill is very important.

I won’t recreate their entire list but instead will give you the highlights here and you can jump over to Investopedia if you are interested.

1. Convert a regular IRA to a Roth IRA this year.
2. Higher Standard Deductions
3. No limit on Itemized or Standard Deductions
4. Larger Earned Income Credit
5. Bigger Credit for College Expenses
6. Tax-Free Employer-Paid Parking and Transit Costs
7. Health Insurance Deduction for the Self-Employed