Reverse Mortgage: Is it Right for You?

REVERSE MORTGAGE 2For me, a reverse mortgage is a plan of last resort. However,  we are living longer and our financial resources are finite.  Therefore we can't take a reverse mortgage out of a retirement plan. 

A reverse mortgage lets you take tax-free cash equity out of your home, as you continue to live in it. You don’t make any mortgage payments, and the loan doesn’t affect your Social Security income or Medicare benefits.

However, there are certainly pros and cons that everyone should carefully consider before they embark on this retirement plan.

The spokesperson for reverse mortgages will tell you that this is really a loan option that can help homeowners ages 62 and older with equity in their homes enjoy a more comfortable retirement. You’re still able to live in your home and retain the title.   You can also receive cash at the closing and open a line of credit to access the rest, as needed, after a year. You receive monthly payments for a set period or for your lifetime. You can also choose any combination of these options.  you may still qualify even if you have an existing mortgage since the funds you receive will first go to retiring this mortgage.

However, there are some disadvantages. Because you’re not making payments and receiving income, the loan balance increases as interest and fees accumulate. In addition, because your equity is decreasing, there’ll be less of an inheritance to leave your heirs. While they can still inherit your home, they must first pay any outstanding balance that you owe.

The reverse mortgage must be for your primary residence, and if you permanently move away or no one on the title is living in the home, the reverse mortgage is due immediately.

The closing costs and fees on reverse mortgage loans are significantly higher than on conventional loans. These are deducted from the loan proceeds and are offset by the fact that you’re not making mortgage payments.

Reference: The Observer News (February 15, 2018) “Reverse mortgages can be a key component in retirement planning”


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