Is A Reverse Mortgage Right For You?

Reverse mortgages are among the fastest growing financial tools in the mortgage industry. They can be an excellent option for helping seniors to remain living in their home for a longer period of time, but they are not all created equal and they are certainly not the right choice for every senior. Let’s take a look at reverse mortgages in a bit more detail.

What is a Reverse Mortgage?

A good starting point is to define what a reverse mortgage is, what it is not, and how it works. When you get a reverse mortgage, you tap into the equity of your home in the form of a very special kind of loan. It allows you to access cash from your home equity without having to pay it back as long as you continue to live in your home. You can access cash in a variety of ways, whether as a one time lump sum amount, a regular monthly direct deposit to your bank account, or a credit line that gives you flexible access when you want and for the amount of your choosing. Many providers of reverse mortgages also offer various combinations of these tree most common payment methods.

The most important thing to remember about a reverse mortgage is that you do not have to make payments back to the lender while you are still living in your home. The loan is set up so that it is repaid in full when the time comes to sell your home.

To qualify for a reverse mortgage, most lenders require you to own your home free and clear, and to be at least 62 years of age.

The question of whether or not you should go after a reverse mortgage can only be answered after some careful research and consideration. You should compare the advantages and disadvantages of a reverse mortgage against the other probably option you might consider – selling your home outright.

Basic Steps

• How much money could you get by selling your home?
• What kind of interest could you reasonably expect to earn safely on the cash you get from the sale?
• What other housing options are available to you and what are the costs of those different options?
• How do other housing options compare to your current home in terms of ongoing costs, ease of access, condition and state of repair, safety, and the like?

There are numerous resources available to help you work through these kinds of questions in a way that is objective and thorough. A great place to start is with the AARP, either on their web site or with a telephone call to their nearest office or customer service center.

There are numerous other factors to consider before deciding for sure to get a reverse mortgage. A few examples of these include the following:

• Fees and costs – A reverse mortgage comes at a very high price in terms of fees and origination costs. These costs are generally not paid to the lender until the home is sold, but that doesn’t mean you shouldn’t be cautious about how much they will eat into the total amount of cash available from your home.

• Is this the right time – Because your home is probably your most valuable asset, give some careful thought to whether this is the right time to tap into that value. If you are relatively young, have other financial resources you can access, or do not have a great deal of cash saved up you should talk with a financial professional about your options.

• What you leave behind – If leaving an inheritance behind for your loved ones is important to you, keep in mind that the cash you get from a reverse mortgage now takes away from the cash you leave behind. You should not avoid a reverse mortgage just because your kids or anyone else is pressuring you to leave your money to them, but neither should you get a reverse mortgage if leaving an inheritance is something that’s very important to you.

As you gather information about reverse mortgages, be sure to consult a range of resources. Be cautious about materials from mortgage lenders and others who stand to benefit if you choose a reverse mortgage, and actively seek out more objective information from non-mortgage associated entities.