If you’re researching different ways to access your home equity you may be wondering, “are reverse mortgages a good thing?”
A reverse mortgage might be a good option if:
You want to eliminate your monthly mortgage payment.1 If you are still paying off your conventional mortgage on your home, replacing it with a reverse mortgage will eliminate your monthly mortgage payment. This may increase your cash flow and give you more freedom to use your money for other things in retirement.
You need access to funds but want to remain in your home. A reverse mortgage may be ideal for you if you wish to age in place and are looking for an extra source of funds. You can use the funds from a reverse mortgage any way you want to, and no payment is due until you move out of the home or fail to meet the loan obligations.1
You need to consolidate debt. The proceeds from a reverse mortgage can be used to pay down high-interest debt such as credit cards or a car loan.2 This is another way that a reverse mortgage may increase your cash flow.
You want to supplement your retirement income. If your retirement income is going to fall short of covering your expenses, a reverse mortgage may be able to provide some relief. You can even choose to receive your reverse mortgage proceeds in the form of monthly payments – this may allow you to live more comfortably within your monthly budget.
You want to set up an emergency fund. If you are concerned about how you are going to handle a large unexpected expense, you may be able to use a reverse mortgage to set up a line of credit. The line of credit grows over time3 and is available any time you need it.
There are also situations where a reverse mortgage may not be a good thing. For example:
Your heirs want to inherit your home. If you have a reverse mortgage, when you pass away your heirs will be responsible for paying off the loan. If they have no interest in keeping the home, they can sell the house and keep the remainder of the proceeds.
Your health is declining. Reverse mortgages become due and payable after a maturity event. One way a maturity event is triggered is if you no longer live in the home as your primary residence. If your health is declining and you are considering moving into an assisted living facility, a reverse mortgage may not be a good idea because the loan will become due as soon as you change your residence.
You want to move. Reverse mortgage borrowers get the most value out of their loan if they keep it for many years. If you are planning on moving in the near future, you will have the repay the loan as soon as you move which may cost more than just waiting to sell.
If you are still wondering if a reverse mortgage may be a good thing for you, you can speak with a licensed loan officer by calling 1 (800) 976-6211 or by filling out the calculator above.
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.
2 Your HECM loan will accrue interest that together with principal will have to be repaid when the loan becomes due.
3 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.