Reverse Mortgage: The Pros and Cons
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Loading... - Tene Odette
- 30 Aug 2022
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A reverse mortgage is a loan for homeowners aged 62 and older who want to borrow against their home equity without having to make monthly payments.1 This mortgage product can help seniors who are short on funds for living expenses. It can also benefit those who want to diversify their sources of retirement income and hedge against risks such as market downturns and outliving savings.
Taking out a reverse mortgage also means spending a significant part of your home equity on loan fees and interest. In addition, the loan terms can put the homeowner, spouse, and heirs at risk of losing money and a place to live.
Here are four situations where a reverse mortgage might be a good choice and four where it might not be.
KEY TAKEAWAYS
- Though a reverse mortgage may be ideal for some situations, it's not right for all senior homeowners.
- Because of the up-front costs, a reverse mortgage may be a costly choice for anyone planning to move soon.
- Prospective borrowers should understand how spouses, partners, roommates, and heirs might be affected by a reverse mortgage.
- Under the right conditions, a reverse mortgage can be an excellent tool for long-term financial stability in retirement.
When a Reverse Mortgage Makes Sense
A reverse mortgage can be a valuable problem-solving tool for seniors who understand how these loans work and have a plan for how they'll use their equity. Here are four situations where this loan might be a good idea.
The guidelines in this article refer to home equity conversion mortgages (HECMs), which are backed by the Federal Housing Administration (FHA).
You don't plan to move soon
You should plan on remaining in your home for the near future if you're considering a reverse mortgage. This rule of thumb isn't unique to reverse mortgages; it also usually doesn't make sense to get a new forward mortgage (like a refinance loan) on a home you're about to sell. The reason? Loan closing costs. Read More...
