Should You Consider a Reverse Mortgage?
A reverse mortgage is exactly what it sounds like: a mortgage that pays you. You don’t pay the lender to build equity. The lender pays you, and in essence purchases some of your equity.
You must be at least 62 years of age to take out a reverse mortgage, and of course you must have sufficient equity in your home. Since you aren’t being asked to pay anything, your credit and income are not as important as when you are trying to take out a conventional mortgage.
You can receive payments on an ongoing basis, in a lump sum, or as a line of credit that you can use as you see fit.
The federal government backs reverse mortgages called Home Equity Conversion Mortgages, so they are legitimate. In fact, you have to go through a HUD-approved counseling session before you can close on one of these mortgages.
However, a reverse mortgage does come with a catch. You may like the thought of receiving some liquidity during your senior years, but when you die, or when the house is sold, the mortgage debt is due. There could be nothing left for your heirs. You could literally spend your children’s inheritances, and you should understand the impact this could have on your estate planning goals.
There are also considerable costs associated with reverse mortgages, including reverse mortgage insurance, origination fees, appraisals, service fees, and of course the interest on the loan itself. However, I have seen a case or two where clients had less current income than they needed and they were spending their savings just to get by. But they have significant equity in their home. A reverse mortgage gave them the economic security and peace of mind to live their remaining years without anxiety over money.
In the final analysis there are pros and cons to a reverse mortgage. The wise course of action would be to discuss all your options with a qualified estate planning attorney.