With a reverse mortgage, you can pull equity out of your house to help boost your finances during retirement. The money you receive through the reverse mortgage is yours to use as you choose.
While a reverse mortgage is an excellent option in many situations, it is not the best choice for every homeowner. How do you know if a reverse mortgage is right for you? Here are some questions to ask yourself.
1. Have you considered other approaches yet to meet your goals?
Reverse mortgages are convenient, but they can carry a hefty price tag. For that reason, you should generally look at taking one out as a last resort, and should consider other options first.
For example, can you cut back on your current expenses? If you are not too attached to your house, can you downsize to a smaller one? If either of these solutions might result in the money you need to meet your financial goals, you should rethink getting a reverse mortgage.
2. Can you afford the associated costs?
There are many fees which you will be charged for a reverse mortgage, for example a monthly servicing fee and closing costs. You also will need to take out insurance on your mortgage, and you will owe interest. If you choose to bundle your fees into your mortgage balance, you will owe interest on them as well.
The interest rates on reverse mortgages tend to be high, so this is something else to be prepared for. As a senior, you may be on a fixed income, so all these costs need to be weighed carefully.
3. Is it likely you will have to move out of the home?
If you need to move out of the house for whatever reason (perhaps to assisted living), you will need to pay back the loan. This could be a hefty expense right when you most need to save money. Obviously, there is no way to entirely predict this, but you can at least consider factors involving health and family to try and figure out how likely it is.
4. Do you plan to pass your home on to a spouse or heirs after you die?
Finally, you need to think about who the house will pass onto after you die. If you are married and expect your spouse might survive you, you need to consider whether your death could compromise your spouse’s ability to stay in the house.
If your spouse is 62 or older, he or she can co-borrow on the loan with you. That means if you die, your spouse can continue to stay in the home and utilize the reverse mortgage.
If, however your spouse is too young to co-borrow on the loan, he or she will be classified as a “non-borrower.” If your spouse is an eligible non-borrower, he or she may be able to stay in the house. But if the spouse is a non-eligible non-borrower, he or she may be forced to leave.
As to the matter of your heirs, remember that you are taking equity out of your home through your reverse mortgage. That means that you are watering down the investment in the home, thus reducing the value of the inheritance you will be passing down. Of course, this is not an issue if you will not be passing on the house.
Conclusion: Reverse Mortgages Can Be Very Beneficial, But You Need to Weigh Their Pros and Cons
Even with their drawbacks, reverse mortgages offer many advantages to seniors in need of some extra liquidity in their personal finances. And if you are in a situation where you have no other recourse for cash and foresee no issues with costs or with your spouse or heirs, a reverse mortgage could be perfect for your needs.
Still not sure if a reverse mortgage is right for you? Capital Source Financial has helped numerous homeowners in Pasadena, Thousand Oaks, Moorpark, Oxnard, and the surrounding areas to experience greater financial freedom through reverse mortgages. Call (866) 303-7050 to find out whether a reverse mortgage may be suitable for you and to shop for competitive rates.