The Best Candidates for Reverse Mortgages
We have covered a great deal of information related to reverse mortgages on this site, but it still can be difficult to determine if a reverse mortgage is the right option for you. Money worries, fears about how long you’ll be able to remain in your home, and the desire to leave something for your children and grandchildren can all complicate the situation and make deciding tough. To help you make an informed decision, we’ll cover some of the most important factors to think about before deciding to go for (or to avoid) getting a reverse mortgage.
Is there a cheaper way to stabilize your finances? – If you are struggling financially, rather than tapping into your home’s equity, it might be worth considering if you can reduce your expenses. You may qualify for a local or state financial assistance program. You may even want to consider selling your home and downsizing into something smaller, that is more affordable and is a better fit for your needs now and as you age.
Is it better to save your equity for an emergency? – Once you tap into your home’s equity with a reverse mortgage, there is really no going back unless you manage to make payments on the mortgage, or you’re able to substantially improve the value of the home. Is it better to leave that equity untapped in case of an emergency in the future?
Are you on a fixed income? – If your income is very limited, a reverse mortgage might not be the right choice for you. Remember that while you will not have a mortgage payment, you will still be responsible for all other home-related costs, including property taxes, maintenance, repairs and the like. If you were to be unable to afford any of those costs, it is possible that the lender would foreclose, leaving you without a place to live. In this case, selling the home and buying something more affordable with the money would be a safer decision.
Are you planning to leave your home to your heirs? – While your heirs are absolutely able to pay off a reverse mortgage, they may not have the money to do that. This would mean they would either need to sell the home or allow the lender to sell it. In either case, their inheritance would be gone. However, if you do not have heirs, or your heirs have no interest in or need for the property, this may be less of a worry.
Do you plan to live in the home for a long time? – If you plan to live in the home for a long period, or even the rest of your life, a reverse mortgage can make a lot of sense. However, if you’re planning to move in a relatively short period of time and are simply looking for a way to stabilize your financial situation in the interim, there are cheaper ways to do it. Remember that you’ll be responsible for mortgage insurance premiums and compounded interest, which can raise the payoff cost of your loan very high.
Your spouse may not qualify to stay in the home. – Is your spouse under the age of 62? If so, they may not qualify as a non-borrowing spouse on the mortgage, which means that in the event of your death, they may not be allowed to stay in the home. Working with a counselor will help you determine your spouse’s eligibility. In addition, even qualifying non-borrowing spouses cannot remain in the home if the borrower leaves for any reason other than death. For instance, if you become disabled and are forced to move to a retirement home, your non-borrower spouse would be forced to pay the mortgage or move out, according to the Consumer Financial Protection Bureau.
In addition to these considerations, the National Reverse Mortgage Lenders Association has a lengthy checklist of considerations to make before applying for a reverse mortgage that can help you determine if this is the best path forward for you. You can download the PDF here.