What is a reverse mortgage and is it right for me?

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Are you and your spouse 62 or older and own a home? A reverse mortgage could be a great way to get the money you need for everyday expenses or that vacation you’ve wanted to take.

But is a reverse mortgage the best option for you?

If you’re like most seniors, your home is your biggest asset. Wouldn’t it be great if you could use the equity in your home to help pay the bills?

But before you do, consider the following before you make this critical decision:

Is a Reverse Mortgage the solution to your long-term financial needs?

For starters, you must either own your home outright or be close to paying it off to qualify for a reverse mortgage. In plain English, you need to have enough equity in your home to leave you with a sizable lump-sum monthly payment or line of credit after paying off any remaining mortgage balance.

You should be aware of the reverse mortgage options available, and be sure the loan would provide the liquidity or up-front sum that you need to address your financial goals.

For example, selling your home could let you have access to all of your home’s equity instead of just a percentage of it. Moving in with a family member or renting are other options you will want to consider before you make your final decision.

Will you be living in your house for the next few years?

Be sure you aren’t planning on moving soon before you take out your reverse mortgage. Remember that a reverse mortgage comes with some upfront costs, just like any other mortgage. Lender fees can vary depending on your home’s value, and the type of reverse mortgage payment plan you go with. You also need to factor in additional closing costs like title insurance, a home appraisal, and home inspection.

Just like with a regular mortgage, you want to be sure you plan on staying in your home for several more years.

Can you afford the ongoing homeownership costs?

Keeping up with taxes, homeowners’ insurance, and maintenance expenses is essential when you have a reverse mortgage. The lender can declare your loan due if you don’t keep up with your responsibilities as a homeowner.

For example, if you don’t pay your property taxes for an extended period of time, tax authorities could place a lien on your home, and even sell it to recoup the taxes owed. The tax authority’s claim supersedes your lender’s, and not paying your taxes puts your house at risk.

Also, not paying your homeowner’s insurance can also put the lender’s collateral at risk. If there ever was a fire, and no insurance to pay your rebuilding costs, then your lender would not have the collateral to cover your original loan – just like a traditional mortgage.

A lack of sufficient home maintenance can also cause your home to lose value. If you don’t replace that leaky roof, you could end up with extensive water damage. Water damage will reduce the original value of the property, and the need for extensive repairs on a home could deter buyers altogether.

Are you and your spouse 62 or older?

All borrowers on a reverse mortgage must be a minimum of 62 years old. If you are married and your spouse is not yet 62, then not getting a reverse mortgage is not ideal, and you may want to wait.

While new laws may protect your non-borrowing spouse from losing your home if you die first, they are not able to receive any reverse mortgage distributions after you are gone. Also, if your reverse mortgage is set up as a monthly income stream credit line, your spouse could lose access to this vital source of income. Note that reverse mortgage proceeds are based on the age of the youngest spouse. So, whether that person is on the loan or not, the younger that age, the lower the amount you can borrow initially.

On the other hand, if you and your spouse are both over 62, a reverse mortgage could be a great option.

The Bottom Line

If you’re a retiree, own your home, and looking for supplemental income, a reverse mortgage could be a great option to consider.

Remember, if the proceeds of your reverse mortgage are enough to meet your financial demands, you plan on staying in your home long term, can afford the ongoing costs of homeownership, and have a spouse who is 62 or older, a reverse mortgage could be the perfect option.

For more information on Reverse Mortgages

Call 1-800-981-6650

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