You might be surprised by how many people are interested in learning about reverse mortgages. There are borrowers from every state, from a wide variety of socioeconomic backgrounds and the ages of borrowers range anywhere from 62 to 95 and older and everything in between. One thing everyone struggles with is when is the best time to get a reverse mortgage.
Reverse mortgages offer homeowners a way to stay in their own homes while opening up access to some of your home equity. Your loan amount is determined by your age, current interest rates and the value of your home. The amount of cash available to you also depends on the amount you owe on a traditional mortgage — if anything. (Any outstanding debts against the home, including an existing mortgage, are paid off with the reverse mortgage proceeds.)
While there is no one right answer, below are a few guidelines to help you answer the important question — when is the best time to get this loan:
When You Need the Money — If you need money now and you want to stay in your own home, then now a reverse mortgage can be a good solution.
A reverse mortgage helps borrowers in need in two key ways:
- The loan eliminates your existing mortgage (if you still have one). This means that you will no longer have to make regular mortgage payments. This alone can dramatically improve your monthly budget.
- In most cases, the loans can also give you access to cash or a line of credit. This money can be used in any way you want. You can use the money to make ends meet, enhance your monthly spending or splurge on something you have always wanted. Many people use the funds to help with medical costs, remodeling, cover larger one-time expenses such as property taxes, or to help a loved one.
When Housing Prices Are High — When your home is valued higher, your reverse mortgage loan amount is higher. If your home value falls, then the amount you qualify for also falls — and, in some cases, you might not qualify at all.
Housing values are generally up across the United States, but they do vary greatly and are dependent on your exact location.
When Interest Rates Are Low — When interest rates are low, you can get access to more money from a reverse mortgage. (Conversely if rates start rising then you may qualify for less if you can still qualify at all.) Interest rates are at record lows right now.
When You Are Older — The older you are, the more you can qualify for with a reverse mortgage.
When You Want to Stay in Your Home for the Rest of Your Life — Most of us want to stay in our own homes for as long as possible. A reverse mortgage can help make that happen. Downsizing might be a more financially efficient way of eliminating your mortgage and accessing home equity but you may not get a place that you love in the same way you love your current home.
When You Want the Loan to Improve Your Quality of Life — For most homeowners, your home is your most valuable asset. And, you have worked hard to pay down or pay off your mortgage. There is no reason you cannot benefit from your own diligence. Many reverse mortgage borrowers get these loans so that they can live a better life in retirement. There are no restrictions on how you use the money.
When You Are Getting the Loan as a Back Up Plan — More and more homeowners are securing a reverse mortgage as a backup plan. A reverse mortgage line of credit can be an excellent way to increase flexibility for your finances. If you don’t necessarily need access to money, but want a rainy-day fund or an extra financial option, then a reverse mortgage is an interesting solution.
A reverse mortgage with a line of credit can be one of the MOST affordable ways to secure a reverse mortgage because:
- When you get a reverse mortgage with a line of credit, you won’t accrue interest on the money being held in the account, but it is there for you if you need it. You will only accrue interest on money you withdraw from the line of credit.
- Reverse mortgage lines of credit grow every year after you establish them. This gives you more borrowing power as you age.
When You Own Your Home Free and Clear — If you have already paid off your mortgage and do not owe anything else on your home, then you really should consider getting a reverse mortgage line of credit as a backup plan. You won’t accrue any interest on the line of credit unless you withdraw from it.
This type of set up simply gives you more choices for maximizing your wealth. If you need funds, then you can withdraw from savings, investments or your reverse mortgage and make a decision about which source of money will cost you the least in the long run.
When You Are Concerned About How Much You Can Leave to Heirs — When you get a reverse mortgage, you retain ownership of the home. It is still your asset and it can be left to your heirs. However, your heirs will be responsible for paying back the reverse mortgage balance. Most heirs do this by selling the home. And, they will never owe more than the value of the home at that time. And, many times there is still equity left for the heirs.
When You Can’t Afford Upkeep — When you secure a reverse mortgage, any mortgage payments you might have been making go away. However, you must still be able to pay for taxes, insurance and maintenance of your home. If you cannot afford to pay these items for the rest of your life, then the loan might not be a good idea. When you start talking with a lender about getting a reverse mortgage, they will help you set up a mandatory financial counseling session that with help you assess whether or not you can afford your home for the rest of your life.
When You Want to Move Elsewhere in the Near Future — Reverse mortgages are not a great loan if you intend to move sometime in the relatively near future. The costs of the loan are best spread out over at least a five-year time period.
If Your Spouse is Younger than 62 — To qualify for a reverse mortgage, the primary borrower must be at least 62 years old. Your spouse can be younger, but it is probably best to wait until everyone is eligible.
When the Home Won’t Accommodate Aging in Place — You probably love your home, but if you are considering a reverse mortgage, you’ll want to think about how the home will function for you when you are much older. For example: Does your home have a lot of stairs? Do you have a plan for navigating the stairs if you develop problems with walking? Can you afford to make modifications to the home that will make it comfortable for you?
Hopefully these considerations help you decide when to get a reverse mortgage — if you get one at all.
The loan process typically takes about two months and not everyone qualifies. Talking with a lender and going through the counseling process can help you make a better decision for your future.