Reverse Mortgages

What is it?

A reverse mortgage is a type of loan that is only available to older homeowners--usually people 60 years of age or older. In this type of a mortgage, the borrower is taking a loan against the equity of their home, much like a HELOC. The main difference is that the borrower doesn't have to make any monthly payments on the loan as long as they continue to live in the house. If they sell the home or if they die, then the bank is repaid through the sale of the home. Reverse mortgages have gotten a bad reputation because there have been many cases of scams or unreputable lenders not clearly explaining the loan to the borrowers. In the past, this led to borrowers losing their homes. However, many retirement experts argue that a reverse mortgage, when used properly and strategically, can be very beneficial to a retiree. 

Advantages of a reverse mortgage

• You don't have a monthly payment on a reverse mortgage. 
• The amount you owe never exceeds the value of your home. 
• Fees and interest are usually financed in the loan, so you don't pay upfront. 
• They offer some flexibility as a retirement tool. 
• You're getting additional monthly income from the loan.

Disadvantages of a reverse mortgage

• The closing costs, insurance, and origination fees are usually higher than other mortgage types.
• The loan is due if you move away from your home. 
• You can't pass your home on to children or grandchildren
• You're still responsible for homeowners insurance and property taxes

Is it right for you?

A reverse mortgage is a good option for people who:

• Are 60 years old or older
• have spoken with a financial advisor on how to use the mortgage strategically
• are planning on staying in their home
• don't care about keeping their home in the family after they pass away