Is a Reverse Mortgage Right for You?

Who Should Consider Doing a Reverse Mortgage? Assess Your Reverse Mortgage Eligibility and Other Considerations

A Reverse Mortgage is a loan against your home that you do not have to pay back as long as you live there. You pay the money back plus interest when you die, sell your home, or permanently move out of the residence.

A Reverse Mortgage can be a great product for seniors who wish to access their home equity. But, there are some drawbacks and it is not for everyone.

Is a Reverse Mortgage right for you? Continue reading to find out.

Do You Need or Want the Cash?

The most important consideration when looking at a Reverse Mortgage is whether or not you need (or want) additional funds for retirement. Many people have opinions about Reverse Mortgages, but the reality is this: Reverse Mortgages can be a great way (and sometimes the only way) for seniors to get access to their home equity to use however they want.

Seniors are living longer than ever and many people need to tap their home equity to fund their longevity. Many people use Reverse Mortgages to supplement their retirement income, fund medical expenses, pay for education expenses, or even fulfill a lifelong dream like traveling.

Reverse Mortgages can also be a great way to eliminate your mortgage. If you have an existing mortgage against your house, a Reverse Mortgage may enable you to pay off that mortgage. So, you will save money every month by eliminating your mortgage payment and possibly still have cash available to you.

Are You Eligible?

For most seniors, the best news about a Reverse Mortgage is that – unlike a Home Equity Loan – there are not any income requirements to qualify. (Unlike a traditional mortgage, there are no payments on a Reverse Mortgage until you vacate the residence.)

But, there are other strictly enforced eligibility requirements for most Reverse Mortgages.

To qualify for a Reverse Mortgage you must:

• Be 62 years of age or older.
• Be eligible for a loan amount sufficient to pay off all mortgages and liens on your property. In order to get a Reverse Mortgage, you must be able to qualify for at least enough money to pay off all existing mortgages or other liens that already exist on the property.
  
  The amount of money you can get from a Reverse Mortgage is determined using a calculation that takes into account your age, county, current interest rates, and the total value of your property. The amount of money you can get from a Reverse Mortgage must be more than what you owe on your home.
  
  Typically, you will probably qualify for a Reverse Mortgage if you owe less than 50 percent of your home's value, but some people qualify owing as much as 90 percent of their mortgage. If you would like to find out how much you are eligible for and verify whether or not you have sufficient equity to qualifiy, try our Reverse Mortgage Calculator (link).
• Own and reside in your home.
  • In most cases second homes, apartment buildings and homes less than a year old are not eligible for a Reverse Mortgage
  • Some programs may accept 2-4 unit owner-occupied dwellings, along with some condominiums, planned unit developments, and manufactured homes. Generally cooperatives are not eligible nor are homes that are less than a year old.

Other Considerations

Even if you need or want the cash and meet the eligibility requirements for a Reverse Mortgage, there are other important considerations.

How Long Do You Expect to Reside in Your Home? Many financial experts believe that you should plan on residing in your home for a number of years if you intend to do a Reverse Mortgage. Why? Mainly because Reverse Mortgages can have relatively high closing costs and since the Reverse Mortgage loan becomes due if your home is no longer your primary residence, it is not necessarily the best short term option.

Medicaid Eligibility: Reverse Mortgages do not generally have any impact whatsoever on your Social Security payments, Medicare or pension benefits.

However, a Reverse Mortgage can affect your eligibility for Medicaid and other low-income programs. If you are enrolled in Medicaid or another low income program, you need to be careful that income from a Reverse Mortgage does not disqualify you from these benefits.

Your Heirs: Many people are concerned about what happens to a home with a Reverse Mortgage after they die. While a Reverse Mortgage does decrease your equity and can impact the overall value of your estate, you can still leave your home to your heirs and they will have the option of keeping the home and refinancing or paying off the mortgage or selling the home if the home is worth more than the amount owed on it.

And, there can actually be estate planning benefits to a Reverse Mortgage.

Alternatives to Reverse Mortgages

Reverse Mortgages are continuing to increase in popularity. However, there are other options for accessing your home equity.

Consider these options:

• HELOC: Many seniors consider a HELOC – a home equity line of credit. The main downside with this type of product is that there are income requirements and the loan must be paid back immediately.
• Downsizing: Moving to a less expensive residence can be a financially efficient way to access your home equity.
• Home Equity Conversion: With Home Equity Conversion, you sell a percentage of your home’s current value and get cash upfront. In exchange, a real estate investment company shares in the future appreciation of your home.

Continue here to compare the different ways of tapping your home equity for retirement.

Or, if you would like to be connected with a prescreened Reverse Mortgage lender, continue here. (NewRetirement will only connect you with lenders who are properly licensed, approved by the Department of Urban Development, and adhere to the NRMLA Code of Ethics.)