As many seniors near retirement, they are searching for that extra little supplementary income to push them over into a life of relaxation. Reverse mortgages can easily be that income; it comes, though, at a price. Some negatives include the fact that you will not have an estate to pass on in your will (unless you do not receive payments for all of your equity) and that there are very steep upfront costs associated. There is no one size fits all formula for deciding if you should take out a reverse mortgage or not, but we will outline a couple big items to help you decide for yourself.
What Are Your Reasons?
Why do you want to get a reverse mortgage? If it is because you are in financial trouble now, then a reverse mortgage could be very dangerous for you. While you will make serious money (equal to less than half of the equity in your home), there are a large number of fees that will cost a serious amount of money at the very beginning of a reverse mortgage. You will make much more money in the long run, but starting a reverse mortgage is an expensive option.
If, however, you are planning your retirement and have a good amount of money saved up already, you may be able to cover these costs initially. If this is the case, then you can view reverse mortgage payments much the same as pension and retirement plans. In summary, only get into a reverse mortgage if you are okay financially and need a boost, not if you are trying to dig yourself out of a major hole.
Am I Old Enough?
The standard dictated age to be eligible for a reverse mortgage is 62 years old. This means that you simply cannot get a reverse mortgage (with the exception of some shady dealers) unless you are at least this old. Just because you are 62 years of age, does that mean you should get one?
There is no way to tell you without seeing your individual financial situation, but there are some general rules of thumb. For example, you need to be able to cover the steep upfront costs. Also, if you are using it to retire early, make sure you view it as a sustenance that adds to your retirement plan instead of being your entire retirement plan.
Perhaps the largest downside to getting a reverse mortgage early on is that rates are generally higher for those who are younger. The older you are, the lower your rates and fees will be. The reasoning behind this is both simple and grotesque: the older you are, the sooner the agency behind the reverse mortgage will be getting their payout in the form of your house. Because you are allowed to live in your house while participating in a reverse mortgage, there is virtually no upside for the reverse mortgage broker until after you are out of the house. All in all, be smart about your finances and if you aren’t sure about a reverse mortgage, stay away.