Should you get a reverse mortgage?

Should you get a reverse mortgage?

January 20, 2017
reverse mortgage
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When you need income in retirement and your savings plus Social Security are simply not enough, a reverse mortgage is a possible option that you can consider. It’s important to recognize that a reverse mortgage does typically involve giving up your home so this financing option does involve a big decision that’s often considered as a last-resort source of income. However, you get to stay in your home and this can be a useful retirement planning tool for some homeowners.

What is a reverse mortgage?

A reverse mortgage is a type of home equity loan for older homeowners that doesn’t require monthly mortgage payments. Reverse mortgages are unique loan product whereby the home equity is accessed and the homeowner receives monthly payments from it.

Reverse mortgages are often considered a last-resort source of income, but they have become a useful retirement planning tool for some homeowners.

The majority of reverse mortgages are home equity conversion mortgages, or HECMs. Insured by the Federal Housing Administration, HECMs allow people who are 62 or older to tap a portion of their home equity without having to move. You also can use a HECM to buy a home.

How a reverse mortgage works

A reverse mortgage is only available if you are at least 62 years old. It allows you, the homeowner, to borrow against the equity in your home and to produce extra retirement income. The good thing about it is that you don’t have to repay the money until you either sell your home, move to another place or until you die. After the death of the borrower, the debt will be repaid by the estate. Usually, the lender sells the home to pay off the debt.

How much you can borrow

The amount that you can borrow depends on your age and on the value of your home. Reverse mortgages are constructed in such a way that the loan and the interest from it do not exceed the home’s value. Another thing that sets reverse mortgages aside from regular mortgages is the fact that the borrower can choose how to get the loan. You can either have a monthly term payment, a monthly tenure payment, a line of credit, a lump-sum check, or a combination of these options.


Of course, there are also some downsides to reverse mortgages. If the homeowner has no other assets besides the home, once he or she dies, the property will go to the lender. Thus, the homeowner’s heirs will get nothing, unless they agree to pay back the loan.

Additionally, reverse mortgages can include high loan origination fees, closing costs, mortgage insurance and monthly service fees. And, once you get a reverse mortgage on your home, it will be difficult to sell or to rent it.


Thomas Hookton is a finance journalist, history buff and science fiction connoisseur. Hit him up via email.

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