Should I Get a Reverse Mortgage? 5 Considerations
Homeowners age 62 years or older have the option of tapping into their home equity through a reverse mortgage loan. And while this option may be open to you, it does not necessarily mean you should take it; a reverse mortgage is not suitable for everyone.
So how will you know when it’s a good idea to get a reverse mortgage? Here are five of the most basic considerations.
Those on a fixed income in retirement are not advised to get a reverse mortgage due to the need to consistently pay off property taxes and home insurance. Failing to keep current on these bills could result in defaulting on the loan and having your home foreclosed.
Lenders will conduct a financial assessment before approving you for a loan. If you have very limited income sources, they will need to set aside an amount to pay the obligations noted above, which will then significantly reduce how much you can get.
Staying in the Home
A major requirement of a reverse mortgage is continuing to live in the home as your primary residence. Once you leave the home or it’s no longer your main address, the reverse mortgage will become due and payable.
If you’re planning to move into a different home in a few years’ time, a reverse mortgage may be too expensive considering you will need to pay property taxes and insurance premiums. For this reason, it’s recommended to get a reverse mortgage only when you plan to stay there for a long time.
There’s an exception, however: you can opt for a reverse mortgage for purchase to buy a new, more appropriate home outright.
In connection with the previous item, some long term care needs may require you to stay for an extended period of time in skilled care facilities. Note that some reverse mortgage contracts require that the primary home must be lived in for a number of months in a year, so long stays in nursing homes for example may lead to default.
Factor in your health and future care needs when making a decision to get a reverse mortgage.
Inheritance for Children
A reverse mortgage may impede your ability to leave your home to your heirs, since the loan balance is usually paid by selling the home once the borrowers have passed or moved out. Even if it’s not sold, settling the account means paying off a balance that has grown over the years with interest.
If you’re considering a reverse mortgage, make sure to let your children or heirs know, as the responsibility to take care of the balance may fall on them in the future.
Finally, getting a reverse mortgage is a big decision – you will be using the equity you built in your home for decades as part of the transaction. It’s imperative that you consider other options that may solve your financial needs besides a reverse mortgage.
Taking on part-time work, making adjustments to your budgets, looking into other types of loans, or checking your eligibility for grants are just some of the avenues you could try in finding additional resources for retirement.
Reverse mortgages are beneficial to homeowners who have enough home equity and are looking to supplement their income from an additional source. It’s highly recommended to speak with a financial adviser to determine whether a reverse mortgage would benefit you, and to ask for alternatives.