The best times to get a reverse mortgage
According to the latest Consumer Price Index report, inflation once again ticked upward in March. Persistent inflation makes it challenging for Americans to manage their expenses, and that's especially true for seniors who are no longer in the workforce or are living on fixed incomes.
On top of that, elevated interest rates, combined with limited retirement income, make it harder for seniors to qualify for home equity loans and other forms of financing to ease their burden. In this environment, many seniors are turning to alternatives, such as reverse mortgages, to borrow money.
A reverse mortgage can help qualified homeowners convert some of their home's equity into much-needed cash to pay off debt or live more financially secure in retirement. While reverse mortgages aren't for everybody, they can be beneficial in certain situations.
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The best times to get a reverse mortgage
Let's examine a few of the best times to consider getting a reverse mortgage.
When you don't have enough income to pay your bills
Many seniors have significant equity in their homes after paying down their mortgage over time, especially if home values have increased. Unfortunately, many of these same seniors struggle to meet monthly expenses.
"A reverse mortgage is tailored precisely for situations like this," says Rose Krieger, senior home loan specialist at Churchill Mortgage. "It eliminates the requirement of monthly mortgage payments, offering borrowers potential cash returns or a line of credit based on their equity."
"The best part is you do not have to make any monthly payments, and you will never owe the lender more than the value of your home. You pay off the reverse mortgage on the home when you sell or through your estate when you pass," Rebecca Awram, a mortgage advisor at Axiom Mortgage Solutions and Seniors Lending CentreMortgage Advisor at Seniors Lending Centre, notes.
Explore how a reverse mortgage could benefit you during retirement.
When your home equity is greater than your loan balance
A qualified homeowner can use proceeds from a reverse mortgage for several reasons, such as:
- To receive supplemental income during retirement
- To access your home equity without the immediate need to sell your home
- To pay off debt, cover medical expenses, fund home renovations or meet other financial needs
- To create room in your budget for unexpected expenses and financial emergencies
You can even use a reverse mortgage to pay off your home loan.
"When a borrower closes on their reverse mortgage, the first thing that happens is any existing mortgages are paid off," says Michelle White, a former loan officer and current national mortgage expert at The CE Shop. "The borrower can then access any remaining equity. The equity can be disbursed in a lump sum or regular monthly payments. The borrower may choose to establish a line of credit or choose a combination of any of these disbursement types based on their financial goals and needs."
When you don't have beneficiaries
A reverse mortgage may be a better option for seniors to tap into home equity for their financial needs if they don't have beneficiaries. In this case, they don't have to consider beneficiaries' interests or preserve the home's value for an inheritance.
"A senior without beneficiaries will not have to worry about planning who will pay off the reverse mortgage after they pass as if you inherit a property with a reverse mortgage, it is your responsibility to pay it back," Awram says.
When a reverse mortgage may not be a good idea
While these mortgages can benefit seniors in a variety of ways, it's critical to understand the downsides of reverse mortgages before proceeding with one. Everyone's financial situation is unique, after all, and a reverse mortgage may not be suitable for all situations.
For example, you might not want a reverse mortgage if you or your spouse is younger than age 62. All borrowers on a reverse mortgage must be at least 62 years old to qualify. If one borrower's age is below the threshold, they may have to be removed from the property deed so the older borrower can qualify for the reverse mortgage. However, this can be a risky move since mortgage disbursements will stop once the older borrower passes away, and they might lose the home if they can't pay off the loan.
And, a reverse mortgage may not be ideal if you can't keep up with ongoing homeownership costs. While you're not usually required to make monthly payments on your reverse mortgage, you do have to properly maintain your home and pay property taxes, homeowners association dues and other property-related expenses. Failing to do so or living away from the home for 12 months or longer could cause the lender to foreclose on your property.
The bottom line
Taking out a mortgage is a serious decision, so it's crucial to consider the benefits and downsides before getting a reverse mortgage. You might consider consulting your financial advisor or tax accountant to make sure a reverse mortgage aligns with your overall financial plan and goals.
However, a reverse mortgage may be a good option in certain situations because it allows you to access your home's equity as cash to reduce strain on your budget and achieve a more financially stable retirement. So, it may be wise to get quotes from several of the best reverse mortgage companies to find the option that most fits your needs.
