Help Your Parents Prepare for Retirement

Your parents are a couple that have always seemed to have their heads on straight when it comes to finances. When they first retired 7 years ago, everything seemed to be going fine, but lately, you have noticed that their spending habits have changed. They have not been going out to eat as much, they rarely travel anymore, and they seem to be constantly reminding you of the rising cost of gas. How can you help your parents prepare for the rest of their retirement? Let me give you an idea to begin.

Have you ever heard of a reverse mortgage? Well, it is a good possibility that your parents have. They are probably inundated with mailings telling them that they qualify for a reverse mortgage. The only problem - they may not know what that means. In the past, these types of loans have had a bad reputation because of the predatory lending practices of its early stages. Let me tell you a little about modern day reverse mortgages. You have to be 62 or over to qualify. The reverse mortgage takes the equity in the home and gives a portion of that money to the owner. It is much like a home equity loan except there are no payments for the life of the loan. That is correct, I said no payments for the life of the loan. The amount of the proceeds is dependent upon the age of the senior, the value of the home, as well as the location of the home. If there is still a mortgage left on the home, that must be paid from the proceeds of the loan, after which any funds are left for the homeowner. More often than not, paying off the mortgage itself is highly beneficial to the homeowner and can greatly increase their monthly cash income enough for them to live comfortably.

Before a senior can submit an application, they have to attend a counseling session on the ins and outs of the loan. This is completely free to the senior, and is paid for by the federal government. It is completely separate from the lending agency and the originator of the loan. There are no out of pocket costs such as closing costs or attorney fees involved. And because there are not payments to return, there are no credit requirements for reverse mortgages. Essentially, it is free money for your parents' retirement.

Disbursement of the funds can come in a number of ways. They can choose to take the funds in one lump sum of cash up front or they can set up a line of credit to be used as needed. They can also set up a guaranteed monthly tenure payment for life, or they can do a combination of the three. An example of this would be a lady in her eighties that refinanced with a reverse mortgage. She had been doing part time catering to make ends meet, but this opportunity came along and she decided to try it out. She was able to pay off her first mortgage, set up a credit line of $25,000 to draw from at any time, she took $25,000 at closing, and set up a guaranteed tenure payment of $1000 per month for the rest of her life. Of course this is someone with lots of equity in her home, but these numbers or some similar are possible for many seniors today.

If you are concerned about your parents and their financial stability, the reverse mortgage is one way to help your parents prepare for retirement.