Many of us are at the qualifying age for a reverse mortgage (62).
Ah, but to get one or not to get one...that is the question.
Reverse mortgages allow you to tap the equity in your home while still living in it. In essence, you're cashing in on that equity, thus reducing it (the equity) as you spend the money.
(Good) Reasons for getting a Reverse Mortgage:
- Pay off higher interest debt/mortgage
Mortgage rates right now are far lower than many associated with credit cards or other debt. Do the math; if after RM fees & interest rate are factored you're still gaining by paying off those high interest obligations this way, it's a good financial move.
- Sustain your desired retirement lifestyle when your asset poor and house rich
Many of us took a mighty hit on our retirement portfolio during the Great Recession, and haven't sufficiently recovered. A reverse mortgage allows you to use your home's equity to make up the difference between your original retirement plan and this new reality.
- You don't plan to leave your home to anyone...
...or even if you do, it's at the bottom of the importance list...
- Taking advantage of this low mortgage interest rate environment
As mentioned above, this could be an excellent way to both pay off current a higher interest mortgage, while also getting extra needed cash
- It's a far superior way to "cash-in" on the equity in your home than a home equity loan or second mortgage
Home equity loans/second mortgages are repaid just like a regular mortgage, and if you default, your home is on the line; there is no "defaulting" on a reverse mortgage so your home is safe. And, the FHA takes on the risk of the product so you can't be upside down in the loan.
- The income you get is not taxable
Doesn't get cooler than that, right?!
- They've become much more affordable
According to John Salter, a certified financial planner and wealth manager who has co-authored studies on reverse mortgages in recent years, RM's were very expensive prior to 2011. But "now, the reverse mortgage market has opened up where it is a much more reasonable cost to get one."
- As your age and the value of your home increases, so does the amount you can borrow
...so, unlike a home equity line or second mortgage, your RM income can increase automatically.
- You retain ownership of your home and there's no "repayment" while you live there
The reverse mortgage is repaid when the borrower dies, permanently moves from the residence, or the property is sold.
- Fees (origination/closing costs/mandatory mortgage interest etc.) can be substantial - higher than those for a regular mortgage
...to the tune of $8-10K depending on the amount for which you qualify. Here's a link to a general overview of these fees, and one for the Consumer Financial Protection Bureau that provides an overview of the limitations on bank fees.
Remedy: take a line of credit and use it only as needed; this can significantly reduce your costs
- RM's could negatively impact future needs
According to the FHA, holding a reverse mortgage could affect your eligibility for: 1). another type of loan, and
2). Medicaid and Supplementary Security Income (SSI).
Finally, here's a few myths & facts about reverse mortgages:
- Myth: The lender takes title to the home.
Fact: You still retain ownership of your home. The reverse mortgage is only a lien against the property.
- Myth: The loan can exceed the value of the property, sticking you or your heirs with a large bill when you eventually leave your home.
Fact: A reverse mortgage is a “non-recourse” loan, which means that you, your heirs, or your estate will never owe more than the appraised value of the home at loan maturity.
- Myth: You can’t get a reverse mortgage if you currently have a conventional mortgage.
Fact: Although this is true, you can get a reverse if you use the proceeds to pay off your existing mortgage at close.
- Myth: A reverse mortgage can cause you to be evicted from your home.
Fact: You leave your home when you choose. No one will force you from your home. The reverse mortgage is not due until your home is no longer your primary residence.
You have been officially alerted.