There is a lot of conflicting information about Reverse Mortgages on the internet. Some experts think that a reverse mortgage loan, also known as a Home Equity Line of Credit (HECM), is a great financial planning tool for senior homeowners while others believe it poses some risks. If you have been looking into financial options you may be wondering, is a reverse mortgage a good idea?
The answer to this question is not a simple yes or no. It depends on your financial circumstances and retirement goals.
A reverse mortgage may be a good idea if you:
Want to remain in your home as you age
Aging in place may require you to make renovations to your home or hire in-home healthcare. A reverse mortgage may be able to provide the funds you need for these conveniences. Best of all, the reverse mortgage will not become due and payable until you sell, move away, or fail to meet the loan obligations.1
Need an alternative source of funds in retirement
A reverse mortgage may allow borrowers to access a portion of their home equity as cash which can be used to supplement their retirement income. You can receive the available equity from your reverse mortgage as a lump sum3, monthly installments, or a line of credit.4 The lump sum payment can be a good option if you want to pay down other debts or make improvements to your home. Receiving monthly installments can help cover ongoing expenses and alleviate stress over monthly cash flow. A line of credit may be a good option for an emergency fund because it is available anytime you need it. An added benefit of the line of credit is that if your home value increases over time, so will the amount available to you. 5
Want to eliminate your monthly mortgage payments
If you are struggling to make your mortgage payments, you may be able to replace it with a reverse mortgage.2 Removing the burden of a monthly mortgage payment may increase your cash flow and provide you with financial flexibility that you didn’t have before.
Are looking to downsize or purchase a new home
Not many are aware that a reverse mortgage isn’t solely used as a refinancing tool; a HECM for Purchase can be used to buy a new home with the same advantage of no monthly mortgage payments.1 This option may be able to give you the freedom to live in a low maintenance home with amenities you love.
A reverse mortgage may not be a good idea if you:
Are planning to move into a retirement facility
The reverse mortgage becomes due as soon as you no longer live in the home so if you‘re already planning to move into assisted living, a reverse mortgage may not be a good option for you.
Don’t own your home
You will not be eligible for a reverse mortgage if you are not on the title of the home. However, contrary to popular belief, you do not need to own your home free and clear. If you are on title, and 62+, it can still be a viable option.
Want your heirs to inherit your home
Once you no longer live in the home, the loan becomes due. If your heirs aren’t able to repay the loan, they may need to sell the home. Planning ahead and making sure your heirs understand the reverse mortgage repayment requirements could help them better plan for this event.
Live with someone who is ineligible as a non-borrowing spouse
If you currently have a spouse that is under 62 that does not qualify as an eligible non-borrowing spouse6, they may not be able to remain in the home after the loan becomes due and payable.
Hopefully, this article has shed some light about whether or not a reverse mortgage is a good idea for you. If you still have questions, call 1-800-976-6211 to speak with a licensed loan officer who can provide you with a personalized loan assessment and see if a reverse mortgage may be a good option for you.
1 You must live in the home as your primary residence, continue to pay required property taxes, homeowners insurance, and maintain the home according to FHA requirements. Failure to meet these requirements can trigger a loan default that may result in foreclosure.
2Your current mortgage(s) and any other existing liens against the property must be paid off at or before closing.
3 Only available on a fixed rate reverse mortgage.
4 The funds available to the borrower may be restricted for the first 12 months after loan closing, due to HECM reverse mortgage requirements. In addition, the borrower may need to set aside additional funds from the loan proceeds to pay for taxes and insurance.
5 The reverse mortgage loan balance grows at the same rate as the available line of credit. Line of credit growth occurs and is only a benefit when a portion of the line of credit is not used. The unused line of credit grows over time and more funds become available during the life of the loan.
6 A spouse must meet the following requirements to be considered eligible: 1) Be the spouse of the reverse mortgage borrower at the time of loan closing and remain the spouse of the borrower for the duration of the borrower’s lifetime. 2) Be properly disclosed to the lender at origination and specifically named as a Non-Borrowing Spouse in the loan documents. 3) Occupy, and continue to occupy, the property securing the reverse mortgage as the principal residence.