Reverse mortgages are an intriguing option designed for seniors who are in need of a little extra cash. The premise behind these mortgages is simple: seniors can basically “sell off” part of the equity from their house over a period of time while still living in it. Although this sounds like an option with virtually no downside, there are a host of considerations that need to be taken into account before anyone should consider reverse mortgages as a serious option.
Who is Eligible?
The standard age to be eligible for a reverse mortgage is 62 in the United States. That being said, many agencies offer very similar programs for those under this age. It is not advisable, though, as this age was carefully designated as those above this age tend to be more sedentary and many of these programs have much steeper rates than standard reverse mortgages.
Another important common stipulation in applying for a reverse mortgage is that you must be a full-time resident in the home under consideration. This means that not only can you obviously not use this scheme on a house that you are not living in, you also cannot move into a different house and continue your reverse mortgage on the original home.
Is this Right for Me?
First and foremost, it is incredibly important that you do painstaking amounts of research before diving headfirst into a reverse mortgage. Many people don’t realize that just because they are eligible for a reverse mortgage does not mean they should get one; it simply is not the right decision for everyone.
Secondly, if you do decide that a reverse mortgage is the way you want to add financial security to your living situation, you need to shop around. Many places that offer reverse mortgages are just trying to take advantage of you by giving you terrible deals and awful rates. This can be easily avoided by comparing rates from a multitude of different agencies. You may still be wondering if you should even consider a reverse mortgage in the first place.
If you are over the age of 62 and plan on living in your current home for a while (as previously mentioned) then you are eligible. One thing that you need to realize about these plans is that your family loses ownership of the estate. While your heirs may repay the loans to regain possession of the house, it will otherwise be owned by the agency you use for your mortgage.
Although you usually don’t run the risk of passing debt on to the heirs of your home, you are also not giving the full estate to your heirs in your will. In essence, you are tapping part of the equity from your will to give you some money in the short-term future.
Lastly, you should realize that the money you receive will be greatly reduced from the value of your home—often less than 50 percent. If you are seriously strapped for cash, reverse mortgages are often a last ditch effort to keep you comfortable in your later years in life. Consider all of the pros and cons, though, before making the plunge.