A Reverse Mortgage is a loan against your home that you do not have to pay back as long as
you live there. You or your estate pays 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 drawbacks to the program and it is not for everyone.
Is a Reverse Mortgage right for you? Continue reading to find out.
Should You Get a Reverse Mortgage – 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
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 it off. This will save
you money every month by eliminating your mortgage payment and possibly even leave additional
cash available to you.
Should You Get a Reverse Mortgage – Are You Eligible?
Eligibility requirements for a Reverse Mortgage include:
Age: At least one title holder must be 62 years of age or older.
Home Equity: Borrowers must be eligible for a loan amount sufficient to pay off all mortgages and liens on your
property. A Reverse Mortgage must be the only loan on the property, and if the funds
from the Reverse Mortgage don't enable you to eliminate all other mortgages, then you
will not qualify.
The amount of money you can get from a Reverse Mortgage is determined by a calculation
that takes into account the borrower's age, 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 currently owe on your home.
Typically, you will generally qualify for a Reverse Mortgage if you owe less than 50
percent of your home's value, but some people qualify despite owing as much as 80 percent
of the value of their home. If you would like to find out how much you are eligible for
and verify whether or not you have sufficient equity to qualify, try our Reverse Mortgage Calculator.
Ownership, residency and home type:
You must own and live in the home with the Reverse Mortgage.
In most cases second homes, apartment buildings and homes less than a year old
are not eligible for a Reverse Mortgage.
Some companies may accept 2-4 unit owner-occupied dwellings, along with some
condominiums, planned unit developments, and manufactured homes. Generally
cooperatives are not eligible.
Financial considerations: You must be able to continue to maintain your home and pay all insurance
sand property taxes on the residence. This will be determined by a financial assessment during the loan application process.
Should You Get a Reverse Mortgage – 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 get a Reverse
Mortgage. Why? Reverse Mortgages have relatively high closing costs and as the Reverse Mortgage
loan comes 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 such as SSI. If you are enrolled in Medicaid or another low income program, you
need to be careful that the income from a Reverse Mortgage does not disqualify you from
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. In addition, there can actually
estate planning benefits to a Reverse Mortgage.
Alternatives to Reverse Mortgages
Reverse Mortgages continue to increase in popularity. However, there are other options for
accessing your home equity.
Consider these options:
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 in order to qualify.
Additionally, unlike a Reverse Mortgage, the loan must be paid back via monthly payments.
On the other hand, the overall impact of a HELOC on your estate tends to be less than
that of a reverse mortgage.
Moving to a less expensive residence can be a financially efficient way to access your
Continue here to compare the different ways of tapping your home equity
Or, if you would like to be connected with a prescreened Reverse Mortgage lender,
NewRetirement will only connect you with lenders
who are properly licensed, approved by the Department of Housing and Urban Development (HUD), and adhere to
the National Reverse Mortgage Lenders’ Association (NRMLA) Code of Ethics.