Hook advised a reverse mortgage. His client would be able to receive $1,800 a month in tax-free income. "From a tax point of view, the reverse mortgage made a lot of sense," even after considering the hefty closing costs, he said.
Munnell of Boston College wishes more retirees would consider a reverse mortgage or some other means of tapping the equity in their homes. "Until now, people have not tapped [home] equity, leaving it to their kids," she said. "But we're in a new world."
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There are two options for using the equity: downsizing or a reverse mortgage. Seniors can sell their larger, more expensive home and buy a smaller, cheaper one, adding the proceeds to their retirement savings. In addition, monthly expenses should fall, also improving cash flow.
Retirees might then consider a reverse mortgage, she said. A self-described "reverse mortgage enthusiast," Munnell said that reverse mortgages are most appropriate for people who are living in the house they want to stay in for the rest of their lives. (Munnell is a member of the board of directors of Longbridge Financial, a reverse mortgage originator.)
"You don't want to go through the expense of signing up for the mortgage and then deciding you can't get up the stairs," she said.