Is a Reverse Mortgage Right for You?

The high costs of reverse mortgages make them a less than ideal financial option for most people. It's better to sell your house and move somewhere cheaper, keeping all the capital you have in your pocket rather than owing it to a reverse mortgage lender. However, there are certain situations where a reverse mortgage could be beneficial. Older homeowners may consider renting, which alleviates the problems of owning a home, such as property taxes and other expenses. Other possibilities include term mortgages, such as home equity loans, home equity lines of credit (HELOC) or refinancing with cash withdrawals, although all of them require good credit and sufficient income or assets to support monthly payments.

Some financial planners consider a reverse mortgage to be a good strategy for maximizing the assets you can leave to your heirs. The reasoning is that the money you withdraw from some retirement accounts is taxed as income, while the money you receive from a reverse mortgage is not taxable. So, if you can live on reverse mortgage income and keep your retirement savings, you could end up leaving more money to your heirs.

A reverse mortgage is a loan for homeowners aged 62 and older who want to apply for a loan with the equity of their home without having to make monthly payments. Home Equity Conversion Mortgages (HECM) are federally insured reverse mortgages and are backed by the U. S. Department of Housing and Urban Development (HUD). If you have friends, family, or roommates who live with you and are not co-borrowers of your reverse mortgage, they should be prepared to move if you die before them. With a government-backed reverse mortgage, if the loan balance is higher than the value of the home, the price for you or your heirs to claim the property is limited to 95% of the appraised value.

With the reverse mortgage line of credit option, you won't have to worry about typical qualification requirements. People age 62 and older who have owned their homes for many years are sometimes attracted to the idea of applying for a reverse mortgage to help finance their retirement. And you don't need to work hard to make ends meet to consider a reverse mortgage, either.

Reverse mortgage borrowers can accept money as a lump sum, as fixed monthly payments, or as a line of credit. Your lender doesn't want to be stuck in a burned down house that's not worth anywhere near what you owe. When considering whether a reverse mortgage is right for you, also consider which of the three types of reverse mortgages might best suit your needs. If you own a higher-value home, you may be able to get a larger loan advance with a reverse mortgage.

Home Equity Conversion Mortgages (HECM), the most common type of reverse mortgage, have a series of one-time fees and ongoing costs. So, while a reverse mortgage isn't always the best option for everyone, there are many situations and circumstances where getting one of these types of loans could have a positive impact on your life.