3 Ways To Create Income From A Reverse Mortgage

3 ways to create income from a reverse mortgage

Investor Education Fund Published on Sunday, Mar. 29, 2009 2:12PM EDT

1. Borrow and invest a lump sum

Invest some or all of the money you get to produce a stream of income, and perhaps increase your savings. You can choose the investments that seems most sensible for you, based on your income needs and the risks you are willing to accept as an investor.

One of your aim might be to keep up with inflation by raising your money faster than prices rise. This is especially essential if these savings are your only source of income. But unless you choose assured investments, you do not know what you will make or how much income you will reap.

2. Set up monthly payments

Use the cash from your reverse mortgage to buy an annuity. You will get a fixed, tax-free monthly income for life or for a several years. You know for certain what your income will be.

Tip: With some annuities, payments cease after you die. If you want to be certain some money will go to family or your estate after you die, you have to buy a guaranteed annuity. This extra feature will lower your payments monthly. Likewise, if you want to be certain your income will go up when prices go up, you will have to buy an indexed annuity, which also has extra costs.

3. Borrow smaller sums when you need cash

This option is available only with the Home Fund Line of Credit Reverse Mortgage. You borrow cash only when you need it to cover expenses. Since you only pay interest on what you borrow, this type of reverse mortgage can cost less than a bigger loan. There is no tax on the cash you borrow.

Since you are borrowing small amounts, you are likely going to spend the money and not invest it. The outcome will be that you won’t be able to grow your savings.

Remember: There are different alternatives to create income from a reverse mortgage

There are some setbacks to each approach, so make sure that your choice fits well with your personal situation and financial goal. Dealing a reverse mortgage involves a lot of big decisions, so it’s always smart to get expert advice.

VIA Globe and Mail

Keyword: Mortgage Lead