A reverse mortgage can be a good way to supplement cash flow in retirement, or open a line of credit for unforeseen future expenses. But it’s not for everyone. Here are 5 reasons a reverse mortgage might not be right for you.
1. You are planning to move soon. While there is a fairly new type of reverse mortgage that allows you to purchase a new home and get a reverse mortgage in a single transaction, the traditional reverse mortgage product is designed for people who intend to remain in their current home. If you have plans to move soon, or may need to do so due to health reasons, a reverse mortgage may not be the best option.
2. Your home is your only asset. One requirement of all reverse mortgages is that the borrower must continue to pay property tax and homeowners insurance in order to uphold the terms of the loan. If you take a reverse mortgage and are on a fixed income without any other assets, you’ll need to make sure you’ve set aside enough reverse mortgage funds to pay for ongoing obligations such as property tax and insurance.
3. You live with family members for whom your home is their primary residence. While non-borrowing spouses are offered some protections, a reverse mortgage typically becomes due when the last borrower passes away or moves from the home. If there are people with whom you live who don’t have other options beyond selling the home in order to repay the loan, you may want to consider the impact your reverse mortgage could have on them.
4. Your cash flow needs are very short term. Like any mortgage, a reverse mortgage has some one-time closing costs and origination fees. If your cash flow needs are short term, you might consider another loan type that can serve a similar purpose, such as a home equity line of credit.
5. You have a history of outstanding debt or missed property tax payments. While there are no credit or income requirements currently for getting a reverse mortgage, some lenders will look at your debt history including any outstanding property taxes. Because all borrowers need to maintain their ongoing property-related payments, you’ll want to ensure you are able to meet those loan obligations.
A reverse mortgage can be a great way to improve your financial picture in retirement, but it is not the right option for everyone. If you are exploring how a reverse mortgage can help your retirement picture, learn more about your options.
