Is a Reverse Mortgage Right For You?

Is a Reverse Mortgage Right For You?

By Janelle D. 2 min read | Financing, Mortgage

If you're a senior citizen and own a home, you may have considered a reverse mortgage. This type of mortgage can make a big difference especially if you're over 62 years old, on a fixed income, and need to free up cash for living expenses. Whether you own your home outright or simply have a lot of equity to draw from, a reverse mortgage might be worth considering.

Older homeowners who have stayed in their homes for decades might find themselves with a lot of equity, especially if home prices have been climbing. By tapping into this equity, with a reverse mortgage, older folks can stay in their homes without worrying about how to pay for their living expenses. If you're thinking about applying for a reverse mortgage, consider the following factors:

  • FHA requires youngest borrower to be at least 62 years old
  • Homeowner can access some of the home's equity
  • Use the home as collateral
  • No repayment until the borrower no longer resides in the home
  • After leaving the home, 6 months to repay reverse mortgage balance or sell the home

A Home Equity Conversion Mortgage (HECM), insured by the federal government, is the most popular type of reverse mortgage. The amount you can withdraw is based on interest rates, age, eligibility of the non-borrowing spouse, the home's appraised value, HECM mortgage limit or the sales price.  Keep in mind, you may not be able to borrow the full value of the home with a reverse mortgage. Here are a few pros and cons of a reverse mortgage:

  • No monthly payments toward loan balance
  • Use proceeds to pay for living expenses, healthcare expenses, debt, etc.
  • House must be maintained
  • Property taxes and homeowners insurance must be paid
  • Fees related to the reverse mortgage can be high (ex. interest rates)

Once the last homeowner passes away or no longer uses the home as their primary residence for more than 12 months, the balance of the mortgage will have to be paid.  If the borrower was the only existing homeowner and passes away, the executor of the estate will either have to repay the loan or sell the house to pay for it. If the loan exceeded the value of the house, heirs may end up in a foreclosure situation where the house ends up in the hands of the lender.  It's important to know that the home can be sold for less than the reverse mortgage balance, leaving more of a burden for the family.

Conclusion

If you're 62 or older and need to free up money to help pay for expenses, a reverse mortgage may be a good fit. Talk to your family before signing on the dotted line as they may ultimately be affected by the loan, if you should leave the home or pass away. Talk to your lender about the expense of getting a reverse mortgage and whether or not the loan will be beneficial in your situation.

Janelle D.

I've worked in the real estate sector for more than a decade and enjoy sharing my knowledge on the subject and researching the latest trends. In my free time I like to craft, spend time with my family and dog, participate in outdoor activities like hiking, and I'm passionate about photography.

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