strategies insights What are the potential benefits and drawbacks of by batmanishere


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                              What are the potential benefits and
                              drawbacks of using a reverse mortgage
                              to supplement my retirement income?
                                  A reverse mortgage is one option for those generally age 62 or older who want
                                   to tap into the equity of their homes without having to sell. With a reverse
                                    mortgage, a bank or mortgage lender makes a payment or payments to you as a
                                    loan against the equity in your residence while you retain the title to your home.

                                           Reverse mortgage proceeds are paid to you            reverse mortgages,
                                           by the lender as a lump sum, monthly                 the loan—including        aSk	T.	ROWE	PRIcE
                                            advance, or credit line, or a combination           fees and interest
                                              of all three. Reverse mortgages can be            charges—is generally repaid through the
                                               expensive, so the decision to acquire            sale of the property, although selling the
                                                one must be weighed carefully against           property is not required. If there are sales
                                                other options.                                  proceeds after loan repayment, the amount
                                                                                                belongs to you or your estate.
                                                  evaluating your situation
                                                   Many individuals would like to remain        Considering expenses
                                                   in their homes after retiring, rather        The total cost of a reverse mortgage can be
                                                    than relocating or relying on family        significant. For instance, interest rates are
                                                     support for living expenses. For this      typically adjustable and are often higher than
                                                     reason, a reverse mortgage can be          those on conventional mortgages. Also, the
                                                      useful for seniors whose homes are        amount owed on a reverse mortgage gener-
                                                      their greatest asset and for those        ally grows over time—interest is charged on
                                                      who have limited investments in           the outstanding balance and added to the
                                                       employer retirement plans, indi-         amount you owe each month. Additionally,
                                                        vidual retirement accounts (IRAs),      you are still responsible for paying real
                                                        pensions, or other investment           estate taxes and homeowner’s insurance
                                                        vehicles. It is important to rec-       while you live in the house.
                                                        ognize, though, that government
                                                       regulations place strict limits on the   exploring your options
                                                     size of reverse mortgages. Therefore,      There are several alternatives when decid-
                                                     individuals might not be able to           ing whether to take out a reverse mortgage.
                                                   extract as much of the equity in their       You may consider downsizing your home
                                                homes as they originally thought.               and moving to an area with a lower cost of
 jesse Wilson, CFP ®,                             If you are considering a reverse mort-        living as a way of reducing your expenses
a financial planner at                        gage, you should be expecting to live in          and creating additional assets to invest. Or
         T. Rowe Price                       your home for many more years. Should              perhaps your house is large enough to
                                             you need to relocate sooner than antici-           accommodate a boarder, such as an adult
                                            pated (e.g., to receive full-time nursing           child or college student, who could pay
                                            care or to live closer to your family), you         rent. Regardless of your personal circum-
                                           will incur the reverse mortgage fees and             stances, it’s important to carefully weigh all
                                          interest without enjoying much benefit from           of your options before making this deci-
                                         the loan.                                              sion, and be sure to confer with your
                                            Keep in mind that the reverse mortgage              financial advisor.
                                        is payable when your home is no longer your

                                        principal residence—upon the last surviving
                                        homeowner’s death, when you sell the home,                For more information on reverse mortgages,
                                           or if you have not occupied the home for 12            visit the Federal Trade Commission’s Web
                                                 months. At that time, the loan balance           site at, and type “reverse
                                                   or market value of the property, which-        mortgage” into the search field.
                                                   ever is less, will be due. With most

                          	                                                                          maRch	2008	         T. 	 R O W E 	 PR Ic E 	 IN V E S TOR 	   5
 T. Rowe Price Investment Services, Inc, distributor.        72272 3/08

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