Reverse mortgage mistakes to avoid
A reverse mortgage can be a way for homeowners age 62 or above to access much-needed funds. It allows you to borrow against your home's equity to provide extra cash in your retirement years, which you can use for everything from medical expenses to making your home more accessible.
However, there are several pitfalls you should be aware of when considering a reverse mortgage. By knowing the mistakes homeowners sometimes make when they take out a reverse mortgage, you can make an informed decision that positively affects your future finances.
Learn more about your reverse mortgage options here.
Reverse mortgage mistakes to avoid
If you're considering a reverse mortgage, steer clear of these common mistakes.
Not understanding the terms and conditions
Before you apply for a reverse mortgage, it's important to carefully read and understand all the terms and conditions laid out in the agreement. Reverse mortgages can be complex and confusing, so don't hesitate to speak with a financial advisor specializing in retirement planning to ensure you fully understand the contract terms.
Not considering all the costs
One big mistake some homeowners make is not knowing all of the costs associated with a reverse mortgage.
One of the most important factors in overall cost is the interest rate, which affects how much you'll owe over time. The interest rate on a reverse mortgage can vary depending on the lender, so it's important to shop around and compare rates to find the best deal.
In addition, you'll need to pay for closing costs, as well as for maintenance, taxes, and insurance costs for the upkeep of your home while you continue to live in it. All of these elements can affect how much you pay for the money you borrow and whether it's worth it for you.
Find out how much you could borrow with a reverse mortgage today.
Ignoring the risks
It's easy to be tempted by the idea of getting extra money in retirement, but reverse mortgages carry risks homeowners must consider before signing on the dotted line.
A reverse mortgage is secured by your home, which means if you can't keep up with the obligations of the mortgage, you could stand to lose your home. In addition, reverse mortgages offer only temporary cash relief, so it's worthwhile to consider reducing your expenses rather than taking out a loan you'll have to repay in the future.
Not keeping up with taxes and insurance
While you're living in your home, you won't need to make any payments on your reverse mortgage. However, you will need to pay your property taxes and insurance. If you don't, it can be considered an act of default and may lead to foreclosure. So make sure you can afford to keep up with these payments for as long as you plan on living in the home.
Not discussing it with family members
You aren't the only one your reverse mortgage might affect. If you pass away, the mortgage will become due and your heirs must pay it back, either out of pocket or by selling the home and using the sales proceeds. If you move out — for instance, to move into a nursing home — the loan will also become due, and you might need your loved ones' help coordinating repayment.
As a result, it's important to discuss the decision to get a reverse mortgage with your family members. That way, they'll be prepared for any actions they need to take in the future and can help you ensure it's the best financial decision for your situation.
Check your eligibility for a reverse mortgage online now.
The bottom line
A reverse mortgage can be a great option for senior homeowners looking for extra income during retirement, but it's important to be aware of the potential pitfalls and mistakes that can lead you to regret the decision.
By understanding the terms of your agreement, weighing the costs and risks, planning for taxes and insurance payments and talking through your decision with family members, you can make a knowledgeable and well-informed choice about your financial future. Don't hesitate to contact a financial advisor as well for their guidance on the best plan for your circumstances.
