Is a Reverse Mortgage an Option?
So many of things in life come down to money and how much things cost. As many of you are well aware, aging has its costs too. When money from working is gone, some of the remaining income is adjusted for inflation (e.g., Social Security) and some income, like pensions, are often fixed and forever being eroded by inflation. At the same time, some expenses like groceries, property taxes and medical care grow, either through inflation, or increased need. In retirement, many are faced with a gap driven by expenses growing more quickly than income.
Reverse mortgages are often used to fill this gap. A homeowner that is at least 62 years old and owes little, or nothing, on their home can tap the existing equity through a reverse mortgage for a regular monthly income. It allows them to live in their own home, comfortably, for as long as they are able. Just like it sounds, a reverse mortgage is the opposite of a traditional mortgage in the sense that your equity falls over time and the debt rises.
Just as with traditional mortgages, they typically have an interest rate, a payment (to you), and fees like closing costs, mortgage insurance and servicing fees. The AARP has a great page on the costs for Home Equity Conversion Mortgage (HECM), which is just another name for a reverse mortgage.
There are a lot of things to know about reverse mortgages, more than we can present here, so do your homework and be careful. As with anything related to your finances, there are risks and unscrupulous actors looking to take advantage of the unwary. Don’t let that stop you from investigating reverse mortgages. Just remember, talk to people at reputable businesses, compare recommendations and above all, take your time. If anyone is trying to rush you into a decision, walk away. Kiplinger.com has an article that describes some of the types of abuses that you might see with reverse mortgages.
Finally, reverse mortgages probably aren’t for everyone. These loans are very expensive. If it’s not absolutely necessary to stay in your home and downsizing is an option, consider selling. If it’s a matter of paying for property taxes, or expensive repairs on your home, there are alternatives like property tax deferral and deferred payment loans. The HECM Resources site has a great page for finding alternatives to reverse mortgages in your state.
Additional resources:
- AARP Foundation Reverse Mortgage Education Project
- Kiplinger’s Personal Finance on Reverse Mortgages
- Reverse Mortgage Calculator
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