Reverse mortgages are a financial tool that allow those aged 62 or older to access the equity in their primary homes. Seniors can remain living in their home as long as they live, assuming they continue to meet the requirements detailed in the reverse mortgage. Borrowers don't have to make payments to repay the loan until the loan matures, at which point it will need to be repaid in full. The repayment often takes place by selling the house after the borrower has passed away. However, is a reverse mortgage a good idea? It depends on your situation.
Is a Reverse Mortgage a Good Idea in Every Situation?
Just like any other financial decision, reverse mortgages may work well or may be a horrible mistake depending on the situation. If you're considering a reverse mortgage, you need to make sure that you have a solid plan in place.
A reverse mortgage may help financially if you've run across a one time issue that needs to be dealt with, but are otherwise living a comfortable retirement. A reverse mortgage will allow you to live in your home as long as you live and follow the rules. The key is you need to make sure you will still have the financial means to follow those rules. You'll need enough money to make insurance and tax payments, as well as keep up on home maintenance for the rest of your life. Keep in mind, when you age you may need your home to be wheelchair or walker accessible if you end up having mobility issues. Converting a home could be a major and expensive renovation, so make sure you'll either have the financial means to renovate or take care of this cost in advance. If this sounds like your situation, a reverse mortgage may be an option for you.
A Reverse Mortgage Isn't Always a Good Idea
Many factors may make taking out a reverse mortgage a less than optimal choice. For instance, if you can't continue making insurance and property tax payments for the rest of your life, a reverse mortgage won't work out well. Banks have the right to foreclose on your home if you get behind on your insurance or tax payments according to the Consumer Financial Protection Bureau. Sadly, that would leave you without your home you planned to live in for the rest of your life.
Reverse mortgages also require you to keep your mortgaged home as your primary residence. If you're planning on moving or downsizing to a smaller home soon, you may want to sell your home rather than taking out a reverse mortgage. If you take out a reverse mortgage and your home is no longer your primary residence, you'll have to repay the mortgage in full or let the bank foreclose on your home.
Finally, if you want your heirs to inherit your home, a reverse mortgage may not be the best choice. In order for your heirs to inherit the home, they will have to pay off the reverse mortgage in full, possibly by selling the home. If your heirs don't pay off the mortgage, the bank will foreclose on the home to satisfy the debt. Unless your heirs have enough money to pay off the loan without selling the house, they won't be able to keep the home.
Make the Best Decision for Your Situation
Are reverse mortgages a good idea? Only you know your personal financial situation and can determine the answer based on those facts. If you determine a reverse mortgage is your best option, calculate your reverse mortgage lump sum and remember, always get multiple quotes to find the best possible reverse mortgage for your situation. However, if a reverse mortgage doesn't make sense for you, don't let others bully you into thinking it is the right move.