A reverse mortgage can help you supplement your retirement income. But is it a good fit for you? It depends on your unique financial situation and the amount of equity you have in your home, among other factors. Read on to learn more about how reverse mortgages work and if it could be worthwhile for you.
What is a Reverse Mortgage?
A reverse mortgage is a home loan product that lets you pull equity from your home and use the loan proceeds in almost any way you wish during retirement. You’re not obligated to make monthly mortgage payments. Instead, the loan remains intact until you pass away, relocate or sell the property.
You should also know that reverse mortgages accrue fees and interest over the loan term. These costs also rolled into the outstanding home loan balance.
How Much Money Can You Get from a Reverse Mortgage?
It depends on how you choose to receive payments. You have the option to:
- A single, lump-sum payment
- A line of credit that grows as time passes (assuming the funds remain untapped)
- Set monthly payments over a certain number of years
- Fixed monthly payments as long as the reverse mortgage remains intact
Is Anyone Eligible for a Reverse Mortgage?
No. You must be at least 62 years old to be eligible for a reverse mortgage.
Are Reverse Mortgages a Good Idea?
If you’re at least 62 years old and own a home that’s used as your primary residence and has a sizable amount of equity, a reverse mortgage may be a good idea. The following section closely examines when a reverse mortgage makes financial sense.
When a Reverse Mortgage Makes Sense
A reverse mortgage could be a smart financial move in these circumstances.
You Need Access to Cash
Reverse mortgages make it easy to increase cash flow. Plus, you can convert your equity to cash without worrying about monthly debt payments.
You’re Not Planning on Moving
A reverse mortgage can be beneficial if you plan to stay in your home for some time. But if you’re planning to move soon, it may not be sensible due to hefty closing costs. Plus, the loan will become payable, so your profit margin will likely be lower if you turn a profit at all.
You’re Married, and Your Spouse is 62 or Older
Reverse mortgages are reserved for borrowers who are at least 62 years of age. Be mindful that if you get a reverse mortgage with a non-borrowing spouse because they aren’t yet 62, they won’t have rights to any profits from the home sale if you pass away. However, they will likely be able to stay in the home until they pass away if they pay property taxes and homeowners insurance bills on time.
You Don’t Want to Pay Monthly Mortgages
Once you take out a reverse mortgage, your current loan will be paid off, and you’ll no longer be required to make monthly payments. This frees up a nice sum of money in your budget each month and alleviates added financial stress during retirement.
Your House is Just an Asset
Is your property more than just a home to you, or do you solely view it as an asset in your portfolio? If it’s the latter and you aren’t concerned with passing your home down to your heirs, a reverse mortgage could make sense.
You Can Manage the Upkeep of Your Home
As mentioned above, borrowers must remain current on homeowners insurance and property taxes to comply with the loan agreement. It’s equally essential to keep the home in good condition by covering any maintenance costs and having major repairs done (as needed) to prevent the loan from becoming payable.
When a Reverse Mortgage Is Not Recommended
However, there are instances where a reverse mortgage may not make financial sense.
Your Home’s Equity is Not Enough
Most lenders require you to have at least 50 percent in home equity to qualify for a reverse mortgage. But if you have minimal equity, taking out a reverse mortgage means you’ll only be eligible for a small lump-sum payment, line of credit, or a monthly disbursement that doesn’t quite meet your needs.
Someone Else Lives with You
If you have co-occupants that aren’t co-borrowers or eligible non-borrowing spouses, they’ll be required to vacate the home if you pass away or leave it for an extended period.
Your House Has Sentimental Value
Do you want the home to pass down to your heirs and remain in your family when you pass away? In this instance, a reverse mortgage wouldn’t make sense as it’ll likely place too much of a financial burden on your heirs when the loan becomes payable.
Your Health is Poor
Reverse mortgages are sometimes used by retirees to cover steep medical expenses. But there’s a downside – if your health situation mandates a permanent relocation, the reverse mortgage balance will become payable unless an eligible non-borrowing spouse remains on the property.
You Plan to Bequeath Your Home
A reverse mortgage won’t make sense if you plan to pass down your home to your heirs through a will. In fact, it will make things more complicated when the loan becomes payable if your heirs are forced to pay what’s owed to keep the home.
Where Can You Get a Reverse Mortgage?
Top Flite Financial is a full-service lender offering reverse mortgage solutions. It’s also a leading originator of Home Equity Conversion Mortgages or HECM loans that the federal government backs. In addition, see here some facts about how reverse mortgages work:
- You will keep ownership of your home
- Retirees use reverse mortgages to finance healthcare, mortgage payments or other ventures
- It’s a specialized loan
- Your equity is subject to the housing market
- FHA-insured HECMs are fully guaranteed and allow a non-borrowing spouse under 62 to be on title and retain all rights to the property if their spouse were to pass before them
Complete the online form to learn more about these offerings and request a free consultation with a Top Flite reverse mortgage expert.
