It’s funny when you hear someone with a definite opinion, one way or the other about reverse mortgages that is the same no matter who you’re talking about or what the circumstances are.
The choice of whether or not to get this loan isn’t universally a “good” or “bad” decision – there are a lot of different factors that need to be considered. But it just could be the right choice for you.
Get Breathing Room for your Budget
A reverse mortgage could be good idea if you’re “house rich but cash poor”—in other words, you own your home outright (or have paid off the bulk of your mortgage), but don’t have much cash-flow
If you have a significant amount of home equity, but not a whole lot of ready cash in your bank account, it could make sense to utilize your available resources by tapping into that equity.
For example, if your budget is strained by ongoing monthly expenses such as medication, food, or utility bills, getting a reverse mortgage can help cover your every-day costs of living and give you some breathing room in your budget, while allowing you to remain in your home.
In another scenario, you might still owe quite bit on your current mortgage and a reverse mortgage might only give you enough to pay off your existing loan. Some might ask why this would make sense if you can’t get any money out of the house, but for others, it could be a good idea to take out a reverse mortgage in a lump sum and pay off your mortgage once and for all and be able to breathe easier knowing there are no more monthly mortgage payments.
You would still be responsible to pay your taxes and insurance, but would it make sense for you if you could eliminate your monthly mortgage payment? Only you can decide that.
No-Income Requirement Alternative to HELOC
Many homeowners get to that point where they need to begin making repairs on their home. Suppose you want to make home repairs or alterations to make it more livable and realize that to do the work, it’s going to be necessary to take out a line of credit for certain expenses? Now suppose that you don’t qualify for a Home Equity Line of Credit (HELOC) because of income or credit requirements as many senior borrowers on fixed incomes are now finding.
With the reverse mortgage credit line option, you won’t need to worry about typical qualification requirements. And you don’t have to worry about whether or not things will get too tight in your budget sending monthly payments to the bank since there are no monthly mortgage payments on the loan.
Preserve Retirement Assets
You may also want to talk to your financial adviser about using a reverse mortgage as a viable financial tool. Many portfolios have seen extreme declines in value and people are hesitant to lock in losses by selling out of those investments at a low point and thus depleting retirement assets.
With the careful planning and advice of your financial expert, you may feel that the reverse mortgage gives you the opportunity to continue to live in your home without having to deplete your assets. Keep in mind that this is not financial advice and that only you and your trusted financial advisor can make this decision…but the reverse mortgage does give you another option to consider.
Improve Quality of Life
And then you don’t necessarily have to be struggling to make ends meet to consider a reverse mortgage either. You could take out a line of credit in case you encounter unexpected expenses, use it for Christmas gifts for your grandkids or for travel, or for whatever you choose.
You can use a little and keep your costs down with the HECM Saver line of credit to preserve equity for family and heirs or if you don’t have any children or heirs and don’t have a plan for your home for after you’ve passed, then a reverse mortgage could simply be used as a way to improve the quality of your life in your retirement years. It’s entirely up to you.
So while a reverse mortgage isn’t universally a “good” idea for everyone, there are plenty of situations and circumstances where getting one of these types of loan could have a positive impact on your life.
Now I realize you may be thinking “This is written by a guy who does Reverse Mortgages”. And I started by saying that I find it funny when someone has a definite stance before they know you or why you do or do not want the loan because there are circumstances which can make the reverse mortgage a terrible idea…
#1 – If you plan to sell your home and relocate to another area in the near future
A reverse mortgage is a loan that is designed for borrowers who wish to remain in their homes and free up equity in their properties to eliminate their current mortgage payments, other debts, enhance retirement funds or to fund private healthcare matters, etc. If your ultimate goal is to relocate to another area to either be closer to family or to downsize to a smaller home, a Reverse Mortgage may not be the best option for you as the Reverse Mortgage balance will rise over time.
#2 – If your spouse is not yet 62
Reverse Mortgages require that all borrowers meet the minimum age requirement of 62 in order to go on the loan. If you are at least 62 years old but your spouse is not, the only way to do a Reverse Mortgage would be to do it in the elder individual’s name only. This could potentially create an issue later on as the loan becomes due and payable with the last borrower on the loan passes or no longer lives in the property. Because the eligibility is based on age, the older borrower will always get more money and therefore, a younger borrower would never be able to refinance for enough to pay off the older borrower’s loan, even if they attained the age of 62 by the time something happened to the older borrower. If you have a younger spouse that would not be able to get on the reverse mortgage with you, I recommend reading this post before going any further.
#3 – If you are on Government Sponsored programs such as Medicaid
Certain programs such as Medicaid have guidelines for individuals involved in the programs based on your income and available assets. Taking out a Reverse Mortgage loan and accessing large sums of cash from the homes equity may invalidate an individual’s ability to qualify for such programs. If you’re a recipient of needs-based programs such as Medicaid or SSI be sure to read this post.
#4 – If you still cannot afford the Taxes and Insurance, you need to consider other alternatives
You are still responsible to pay the property taxes and hazard insurance and maintain your home, even though you no longer have any monthly mortgage payments. If this is still a struggle and you cannot afford to live comfortably, even after you get a reverse mortgage, then you have to make some hard decisions and sooner is better than later.
A reverse mortgage will allow you to live for the rest of your life in your home as long as you can maintain it and pay the taxes and insurance. If you cannot, eventually you will default on the taxes and/or insurance which would also be a default on the reverse mortgage loan. If this is inevitable because you still cannot afford them, then even though no one wants to move out of the house they love, it may be time to make that tough decision before a default situation and you have even less equity to re-establish yourself elsewhere.
#5 – If your health is poor and you do not think you can remain living in the home
The terms of a reverse mortgage require you to live in the property as your primary residence. If you are already in poor health and are looking into possible long term care in the near future, a reverse mortgage may be the wrong choice for you as your loan wouldn’t allow you to be living outside the home for a period of more than 12 months.
So… what do you think about reverse mortgages?
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