Should You Consider a Reverse Mortgage?
If you’re retired and find yourself with unexpected medical or other expenses, or an inadequate retirement fund, the equity in your home could provide a crucial source of income, thanks to a reverse mortgage. Yet while they can be useful, reverse mortgages come with risks, so consider your situation carefully.
What is a reverse mortgage?
It’s a type of loan offering retirees (only people 62 or older qualify) access to money without requiring regular monthly payments, and while remaining in their home. According to Peter Bell, president and CEO of the National Reverse Mortgage Lenders Association, you can draw down funds and defer any repayment until you pass away or decide to move.
What are the downsides?
“A reverse mortgage obviously helps the cash flow,” Bell says, “but you still have the responsibility for maintaining the home and paying taxes, insurance and homeowner association dues. So, people need to make sure they’ll have the resources to cover those expenses.”
Federal Housing Administration insurance, which covers most reverse mortgages, guarantees that borrowers (or their heirs) won’t owe more than what the house sells for when the loan is eventually repaid. Still, keep in mind that repaying the loan will leave you with that much less equity should you decide to sell, or that much less to leave to your heirs.
Review your overall finances
When considering a reverse mortgage, it helps to start with a detailed budget including all of your income and expenses, Bell suggests. Knowing what money you have coming in and going out each month can help you determine whether a reverse mortgage could fill the gap. This is a huge decision with huge consequences. Before you sign any papers, sit down with a financial planner who has the skills to help you decide.