The Pros and Cons of Reverse Mortgages
September 11, 2022
Part of financial planning involves investigating all of the different ways you can establish streams of income in retirement. It’s best to begin this process many decades before you retire, but some people get a late start. Whichever group you fall into, you might be wondering about something called a reverse mortgage.
Reverse mortgages allow you to pay off your existing mortgage and then generate income from the equity in the home. Your bank essentially “pays you” to live there until you pass away or move into a retirement home. These arrangements are occasionally used by retirees to generate income, but are they a good idea? Let’s investigate the pros and cons.
Pros of a reverse mortgage include:
- You can generate tax-free income in retirement
- You won’t have a monthly mortgage payment, typically a large expense for most of us
- You won’t owe any payments on the money you receive as long as you live in the home
- You can set up a reverse mortgage to provide a monthly payment, a one-time loan, or even just a credit line
- Loan balances can’t exceed the property value, so you don’t have to worry about being “upside down” on a loan
Cons of a reverse mortgage include:
- You can’t qualify until you’re at least 62 years old
- You must have significant equity in your home to qualify
- Fees and closing costs will apply
- Your heirs won’t inherit the home
- You cannot move out of the home without the balance of the loan becoming due
- If you default, your home could be foreclosed
- Using a reverse mortgage could make you ineligible for benefits like Medicaid or Supplemental Security Income
A reverse mortgage can be a viable option for some retirees, but only under certain conditions. Before signing a contract, let’s meet to discuss your income generating options. We want to help you make wise decisions that you won’t regret later.
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