When you retire, you want to spend your days thinking about trips you’re going to take, grandkids you’ll be playing with, hobbies you’ll be getting back into, and the time to yourself you’re finally going to have to get caught up with all the things you had to put aside while you were busy working and saving for your future. When the day comes that the future you were saving for is here, the last thing you want to have to think about is where the money is going to come from to pay for all the things you want to be doing. Even in the best scenarios, when you have savings and carefully planned for your retirement, it can be difficult to maintain the level of income you grew accustomed to as a working person. In these circumstances, many people think about applying for a reverse mortgage. A reverse mortgage draws on the equity in your home, giving you immediate access to that money, and only has to be paid off when you sell your home or pass away. You have to be at least 62 years old to qualify for one. There are pros and cons to reverse mortgages, but if you’ve done your homework and talked to a financial counselor, you may decide that a reverse mortgage is the optimal solution for your particular needs. Before you sign on the dotted line and make it official, here’s seven things about reverse mortgages that you definitely want to be aware of.
- You can get one even if you still owe on your mortgage. You may have heard that you need to own your home completely free and clear to be eligible for a reverse mortgage, but you can qualify if there’s just a small amount still owed and you use the reverse mortgage funds to pay it off.
- You can choose how you get the money from it. Getting monthly checks isn’t the only way to draw your funds from a reverse mortgage, although it is an option. You can also get a lump sum payment or open up a line of credit that grows over time. You may also be able to choose some combination of these options.
- Not all reverse mortgage lenders are created equal. The reverse mortgage companies with TV commercials featuring celebrity spokespeople may be the first ones that come to mind, but the most reputable ones aren’t necessarily the ones trying the hardest to grab your attention. Do your research and look for well-reviewed companies that have good ratings from objective organizations like the Better Business Bureau.
- The upfront fees can be costly. It can be easy to gloss over the fees you get charged for taking out a reverse mortgage, as they tend to get rolled into the loan balance. However, they can be expensive compared to fees for regular home equity loans, so make sure you shop around to find competitive prices.
- Reverse mortgages can help protect your other assets. Drawing funds from retirement accounts during downturns in the stock market can put you at a disadvantage. One benefit of having funds available from a reverse mortgage is that you have an alternate source of income, which can allow you to leave your investment portfolio untouched until the market recovers.
- You’re still responsible for property taxes and home insurance. Taking out a reverse mortgage can wipe out any remaining mortgage payments you might owe, but it doesn’t cover the property taxes and home insurance that may have been included in those payments. You’ll have to take responsibility for paying those separately, so make sure you budget for that.
- The bank doesn’t own your home, and your estate isn’t required to sell it. Many people have the misconception that a reverse mortgage means the bank takes over the title to your property, or that you can’t leave your home to your heirs when you pass away. Neither is true! The lender will put a lien on your property, but you’ll still hold title as the owner. While you are required to pay off the reverse mortgage when the house is sold or you’re no longer living in it, your estate will have twelve months to find alternate means of settling the loan once they take possession, either by refinancing or paying it off outright. Some people will even use part of their reverse mortgage funds to purchase a life insurance policy exactly for this purpose.
Got all that? Reverse mortgages may not be for everybody, but they can be really helpful financial products for some people. Just make sure you take the time to learn as much as you can about them to decide if they’re right for you!