Reverse mortgages, when used correctly, are one of the most viable tools a senior has in being able to afford a comfortable retirement. This doesn’t mean that they are applicable for every single person, though. While it is not the norm, there are a multitude of specific cases where reverse mortgages should simply be out of the question. Whether this is because of finances or legal issues and technicalities, it is important to know if you fall into any of these cases before you sign onto a reverse mortgage.
What many people do not seem to realize is that reverse mortgages, without exception, are expensive and have high upfront fees. These costs include things such as an origination fee and interest that accrues on what is taken out. As an aside, interest will build only once the money is taken out of your equity, so you need to think carefully about what type of plan you will undertake (i.e. line of credit, lump sum, etc.).
How can you make sure you can cover the fees? The first step is to shop around and make sure you are getting the best deal for your time and equity. Make sure that with each reverse mortgage agency, you fully understand and recognize all of the things you will have to pay. Sit down with a representative from the agency and have them outline every fee to make sure you are not slammed with any hidden fees in the future.
Next, look closely at your own finances. Make sure you have the money to cover all of the initial fees and then some. It is important getting a reverse mortgage does not run you dry, as you have to be covered in case of an emergency down the road. After this, make sure you can cover all future costs with money you will be receiving from pension or have saved up in the bank.
A classic situation where a reverse mortgage is unadvisable includes a spouse who is under the age of 62 and therefore unable to sign on the reverse mortgage. While this does not sounds problematic to someone without intricate knowledge of reverse mortgages, it quickly becomes evident that it is a problem once you realize that the loan must be paid back in full upon the death of the last remaining signer. This means that if the only spouse who signs dies, the younger spouse will have to repay the loan in order to stay in the house.
Another situation in which is unadvisable to get into a reverse mortgage is when you are in poor health or plan on moving soon. If you are off of the estate for more than 12 months, the loan will also have to be repaid in most circumstances. Because of this, it is essentially worthless to partake in a reverse mortgage if you are probably not staying on the property for very long; in fact, it will most certainly lose you money if you are alive once the loan is called payable.