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Is A Reverse Mortgage A Good Idea?
Whether or not a reverse mortgage is the right fit for you comes down to evaluating your unique circumstances and objectives. We aren't afraid to tell you the advantages and disadvantages of a reverse mortgage and let you decide if it makes sense for you. Contact us today for a detailed evaluation.
A Reverse Mortgage Might Be A Great Fit...
If you have a mortgage or other monthly debt
In many cases, a reverse mortgage can be used to pay off an existing mortgage balance or other debts. If you are making monthly mortgage payments or have other monthly debt payments, a reverse mortgage might be able to pay them off and free up the monthly payment, leaving more cash in your pocket each month.
If you have little to no retirement savings
If you have a good amount of home equity but not much in the way of savings or cash on hand, a reverse mortgage can be a great way to access some of the equity that is locked up in your home, without the burden of a monthly payment. The reverse mortgage can be set up to create an emergency or long-term credit account, you can also opt to receive funds in the form of a monthly pension or as a lump sum.
If you plan on staying in your current home long-term
Taking into consideration your long-term needs, ability to maintain the home through the course of retirement, and potential mobility concerns, once you’ve determined you are in the home you plan on remaining in throughout retirement, a reverse mortgage is ideally suited for long-term use.
If you need more money in retirement
Whether you need a little more financial flexibility in retirement or a lot, a reverse mortgage can give you the ability to tap into what is likely your largest asset and turn it into a long-term retirement tool.
If you rely primarily on Social Security for your income
For many retirees, Social Security represents the majority of their monthly income in retirement. Even with careful planning and frugal spending, money can still be tight at the end of the month. A reverse mortgage might be able to alleviate this pressure and provide much-needed financial peace of mind.
A Reverse Mortgage Might Not Be A Good Fit...
If you plan on moving in a few years
The reverse mortgage is meant to be a long-term solution to retirement. In addition, the initial costs to set up a reverse mortgage may not make it worth getting into if you are only going to keep it for a few years. It may be worthwhile to wait until you are in your forever home, before pursuing a reverse mortgage.
Because the closing costs can be high
The total closing costs will vary widely from lender to lender. The cost that constitutes the bulk of the fees is in the form of FHA’s upfront insurance premium. FHA charges an upfront premium of 2% of the home’s value. For example, if the home appraises for $450,000, the upfront insurance premium will be $9,000. The insurance is what makes the program possible and allows you to access equity without requiring monthly repayment. That being said, at Abide we are able to offer low and no-fee options for most of our clients. Lastly, nearly all the costs can be financed into the loan.
If you want to leave as much inheritance as possible
It's been said the reverse mortgage was not designed for the heirs. If you are concerned with leaving as much of your equity as possible to your estate, a reverse mortgage might not be for you. In reality, once a reverse mortgage is in place, the equity in your home decreases over time, leaving less to your heirs.
Because your loan balance goes up every month
Due to the fact you are not required to make monthly payments on a reverse mortgage, the interest is deferred and added to the balance for as long as you have the loan. As a result, the loan balance will slowly increase over time. While you are not required to make payments on a reverse mortgage, there are no prepayment penalties, therefore you are free to pay back the reverse mortgage in full or in part at any time, without penalty.
Because you still have financial obligations with a reverse mortgage
While you may not have any principal and interest payments on a reverse mortgage you are still obligated to pay your property taxes, remain current on your HOA dues (if applicable), maintain homeowners’ insurance (if applicable), and maintain the condition of the property.
