If you plan on remaining in your home after retirement, reverse mortgages are another financial resource you may wish to become familiar with. Essentially, a reverse mortgage is a line of home equity for which most homeowners age 62 and older are eligible. Rather than taking out a loan to cover certain expenses after retirement, you can draw on your home’s equity. A reverse mortgage can provide additional income when needed, and you’re not required to pay back the money borrowed until your home is sold or otherwise vacated.
On the other hand, you will need to remain up-to-date on all your home’s property tax payments, insurance, and HOA dues (if applicable) in order to qualify. Other options worth considering in lieu of a reverse mortgage include home equity loans and lines of credit.
The Pros & Cons of Reverse Mortgages
The biggest advantage to a reverse mortgage is that it allows you to borrow against your own equity while retaining ownership of your home. It’s a great option for seniors who need a little extra monthly income to cover medical expenses or other unforeseen financial obligations. In fact, there are no limitations on how you can use funds from a reverse mortgage.
On the other hand, there are some costs involved with a reverse mortgage that need to be considered. For example, loan origination fees, appraisal costs, and interest can easily total thousands of dollars, so this needs to be a determining factor when deciding whether a reverse mortgage is your best option.Furthermore, since you’ll need to pay back your reverse mortgage when you move out of the home or sell it. If the homeowner passes away while living in the home, the home then belongs to the lender which may prevent you from keeping your home “in the family,” which is a deal-breaker for some.
Is a Reverse Mortgage Right for You?
Typically, a reverse mortgage is a viable option when you have a large expense to cover and do not want to go through the hassle of taking out a private loan. For instance, many will use funds from a reverse mortgage to cover medical expenses. Some choose a reverse mortgage to simply boost their monthly income. It is typically a smart choice for those who plan on remaining in their home for a long time to come. However, a reverse mortgage is generally not the best choice if you plan on moving soon, or if you can’t currently keep up with the costs associated with owning your home.
If you decide to go through with a reverse mortgage, be aware that you will be required to receive financial counseling (at no cost to you) through a third-party, such as AARP or a national counseling agency. You will also need to own your home outright (or have a low mortgage balance) in order to be eligible.
Overall, a reverse mortgage can be a great way to access a considerable amount of funds to assist with aging in place. If you have any questions about whether or not a reverse mortgage is a good choice for you, it’s in your best interest to speak with a financial advisor.
The biggest advantage to a reverse mortgage is that it allows you to borrow against your own equity while retaining ownership of your home.