When Reverse Mortgages Are Appropriate
In a previous article, we looked at what a reverse mortgage was and some of the rules regarding them. For this article, we’ll try to answer another question you might have—when a reverse mortgage might be the right course of action for you.
As with any topic related to finances, the decision of whether or not to apply for a reverse mortgage is a big one, and one that should not be considered lightly. For example, if there is an easier, cheaper way to reach your financial goals, you should consider that route before applying for a reverse mortgage. Also, consider whether or not you should dip into your home equity now, or if you should save it for an emergency. Speaking with a financial advisor and coming up with a good financial plan can help one to avoid making split-second financial decisions in an emergency that may wind up doing more harm than good in the long run.
Now that we’ve taken a look at a couple reasons why you might want to wait, let’s see some of the cons of getting a reverse mortgage:
- HECM loan balance increases with time
- The value of the estate inheritance may decrease with time as proceeds are spent
- Fees have the possibility to be higher than a traditional mortgage
- The initial FHA Mortgage Insurance Premium
- Annual FHA Mortgage Insurance Premium
- The loan origination fee might be higher than traditional mortgages
- While Social Security and Medicare eligibility remain unaffected by a reverse mortgage, needs-based government programs like Medicaid can be.
Of course, it’s not all doom and gloom when it comes to reverse mortgages, either; there are some good aspects. So let’s take a look at some now:
- You have options to receive funds as a lump-sum payment, monthly payments, as a line of credit or in a combination of these options.
- You’re able to stay at home without making monthly mortgage payments
- The proceeds are tax free
- Your heirs are not personally responsible if the payoff balance is more than the value of the home
- And finally, your heirs will inherit any equity that remains after paying off the reverse mortgage
It is important to note that, while this article was indeed intended to provide insight on the topic of reverse mortgages, it is still not a decision to be made lightly. You should seek as much information as possible, speak with family and friends or others you trust, and consult with a financial professional if you have questions regarding reverse mortgages or any other topic related to finances. In doing so, you will be sure to have all the information and answers you seek, and you can thoughtfully weigh them against your personal situation before making any decisions that might affect you or your family or other loved ones.