Replacing Your Mortgage with a Reverse Mortgage

by Wade Pfau, Ph.D., CFA

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Originally published at Forbes

After my recent overview of potential uses for a reverse mortgage, I want to go deeper on each item. The first set of options for a reverse mortgage uses the available credit more quickly, either to pay off an existing mortgage or to purchase a new home. With these strategies, it is possible to look at using outside resources to avoid borrowing more than 60% of the initial principal limit during the first year of the loan. Using outside sources could mean the difference between paying a 0.5% initial mortgage insurance premium, and a 2.5% premium. For a $500,000 home, that difference means $10,000 of additional costs for exceeding the limit.

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