Your Home and Your Retirement (Part 4)

by The Real Estate Faction on March 10, 2011

4Payout AlternativesStudy payout options associated with a reverse mortgage carefully to determine whether one may work for you.

Payout Option Advantages Drawbacks
Lump sum You receive a considerable sum. Interest accrues on the entire amount.
Line of credit You have the flexibility to draw only as much as you need. Fees may outweigh the benefit if you draw only a small amount.
Annuity-like schedule You may receive a source of income for as long as you remain in your home. Payments are not indexed to inflation.

The recent boom in the national housing market may have lulled many Baby Boomers into believing their home equity will be enough to see them through a comfortable retirement. If you’re among those who intend to rely on a home’s value — either through downsizing, relocating, or obtaining a reverse mortgage — make sure that your plans include realistic projections. And remember that maintaining a diversified portfolio of other types of investments can potentially help balance out your overall pool of financial assets.

The Average Annual Rise in Home Prices:
Compare Recent Years with Historical Averages
2000-2004 1975-2004
New York 10.65 6.81
Ohio 4.28 4.81
Texas 4.39 4.15
California 14.46 8.51
U.S. Average 8.17 5.78
Source: Office of Federal Housing Oversight, OFHEO House Price Index, 2004 data as of September 30 (most recent available).

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