Many people are instantly taken aback when they hear about all of the benefits to reverse mortgages. Sure, they are fantastic plans and when used correctly, can be a fantastic part of any retirement strategy. This being said, if you are not careful when signing up for a reverse mortgage, it can run you dry.
This is in no means a way to scare you out of getting a reverse mortgage; rather, it is meant to make sure you are getting a reverse mortgage for the right reasons and in the right circumstances. There is a big difference between someone who is financially and emotionally ready to fulfill all of the requirements that a reverse mortgage entails and someone who is not.
At this point you are probably wondering if you are in the right situation for a reverse mortgage. First of all, as you very well may know by now, you need to be at least 62 years of age to even qualify for a reverse mortgage backed by the government. On top of this, you must have equity built up in your house and plan on living in your current house for the foreseeable future.
Perhaps the most important question that arises is: are you okay with not passing on your estate to your family upon your death? If the answer is no for whatever reason, you may want to think about some sort of alternative such as downsizing. If the answer is yes, though, then reverse mortgaging might be exactly what you are looking for. Another important caveat is that if the only signer of the reverse mortgage passes away, the house is taken by the lender. This can leave a spouse out in the cold—so make sure you both sign the reverse mortgage contract!
As stated above, you have to remain in your current house to keep getting checks for a reverse mortgage. This can be a blessing if this is your plan, as no other alternatives allow you to change literally nothing about your living situation and still make money. If you are out of the house for a year, your reverse mortgage is terminated.
Reverse mortgages are expensive. There are steep upfront costs as well as interest payments associated with these plans, so you may not make as much money in the long run as you originally think. This means that you need to be able to comfortably cover the costs that come with it in order for it to be advisable. If you think you can barely cover the costs, you can’t.
This being said, if you are able to pay all of the fees upfront, you can build in a nice monthly supplement with reverse mortgages. This is considered the right way to use reverse mortgages: a solid monthly income to help you have a little bit more money from month to month instead of as a last resort or lifeline.