Should you get a reverse mortgage? That really all depends on your age, homeownership status and a few other factors. For many seniors, reverse mortgages offer more benefits than drawbacks. Ask yourself, “is a reverse mortgage right for me?” Take a look at the pros and cons of a reverse mortgage to determine if it’s the right choice for you or for your parents.
Pro: Easy Access to Your Home’s Equity During Retirement
For the past 15 or 30 years, you’ve made regular mortgage payments and your home is either fully paid off or almost there. Having a substantial amount of equity might feel good and reassuring, but it won’t help you pay the bills or put food on the table. Reverse mortgages let you tap into your home’s equity, without giving up the deed or title to your house. Depending on the type of reverse mortgage you get, you can use the funds from it to make repairs on your home or to supplement retirement income.
Pro: Standby Line of Credit
You have several options when it comes to getting the funds from reverse mortgage, according to the Federal Trade Commission. One one is taking a lump sum payment, which usually requires you to use to for a specific purpose, such as making repairs. You can receive monthly installment payments, or you can use your reverse mortgage like a line of credit. The funds are there if you need them, but you don’t have to withdraw them.
Pro: Won’t Interfere With Other Retirement Benefits
Reverse mortgages help you more fully enjoy retirement, without cutting into your other retirement benefits. Since the money you will receive from a reverse mortgage isn’t counted as income, it won’t lower the amount you get from Social Security or reduce your Medicare benefits.
Pro: You Still Own Your Home
When you take out a reverse mortgage, you aren’t giving up ownership of your home. You retain the title on the property and the mortgage is just a lien against the home.
Pro: Payments are Tax-Free
Since the money you receive from a reverse mortgage doesn’t count as income, it isn’t taxed. That means you won’t have to worry about setting aside a certain portion of the payments to give to the IRS and won’t have to figure out how to make estimated payments to avoid a high tax bill in April.
Pro: The Mortgage Can’t Be Higher Than the Value of Your Home
Housing values can fluctuate. If you take out a reverse mortgage, you might worry that the amount you borrow against the equity in your home might be more than the home is worth when it’s time to sell and pay back the loan. The good news is that for some types of reverse mortgage, the amount due will never be more than the sales price of the home, according the Consumer Financial Protection Bureau.
Pro: You Don’t Repay the Loan While You Live in the Home
The one thing that makes a reverse mortgage so appealing is that you don’t have to make payments on it for as long as you (or your spouse after your death) continue to live in your home. The loan only needs to be repaid once you sell the home or after the last person to have their name on the mortgage dies.
Con: Not Everyone Qualifies for a Reverse Mortgage
Of course, there are a few drawbacks to reverse mortgages. One is that not everyone can get one. You need to be at least 62-years-old to qualify and also need to own a home. If your current mortgage isn’t fully paid off, it needs to be paid off with the proceeds you get from the reverse mortgage.
Con: There are Fees
Reverse mortgages aren’t free. There are fees and interest in the mortgage, reducing the amount you get from the loan. Ask your lender about the fees up front, so that you’re aware of what you’re paying and why.
Con: Scammers Are Out There
Keep an eye out for scammers and signs of fraud when shopping for a reverse mortgage. One popular scam is for general contractors to insist that you use a reverse mortgage to pay for repairs or updates on your home. While you can use a reverse mortgage, it’s not always your best option and you want to be wary of anyone who tries to pressure you.
Is a reverse mortgage right for me?
Remember the following:
- Reverse mortgages let you tap into your home’s equity
- Payments are tax-free and you don’t repay the loan as long as you stay in your home
- Reverse mortgages don’t affect other retirement benefits
- Not everyone can get a reverse mortgage
- Some scams exist, so it’s important to be cautious.
One way to avoid scammers and frauds when considering a reverse mortgage is to work with a team of specialists who have your back and your best interests at heart. The Long Term Living Association is a team of professionals who aim to help seniors live life on their own terms. To learn more about our reverse mortgage services schedule an appointment with Rick Schluter today.
Our Reverse Mortgage Specialist