Like many Americans in retirement, you may find yourself wondering about the best financial course to take and how to best use the money and assets you have worked to build over time.

You probably have built up your equity over the years and you may even own your home free and clear.

For many baby boomers, the home is the largest asset they have and may be wondering if a reverse mortgage is right for you.

If you are thinking about a reverse mortgage versus selling your property, here are some things to consider.

Do you wish to stay in your home?

This is the most important question to ask yourself if you are thinking about getting a reverse mortgage versus putting your house on the market.

If you don’t plan to stay in your home—or if you don’t plan to be there for the long term—a reverse mortgage may not be the right option.

If, like the vast majority of Americans, you do wish to remain in your home while you age, then this type of loan—designed expressly for the purpose of aging in place—is an option to consider.

How much is your home worth?

In order to qualify for a reverse mortgage, you must be at least 62 years of age and you must have a substantial amount of home equity.

In order to get a reverse mortgage, all existing loans on the home must be paid off.

Borrowers are able to use loan proceeds to pay off the existing mortgage and then can receive any remaining proceeds through a lump sum, term or tenure payments, or as a line of credit.

Selling may be an option for you, but the recent housing crash has left many homeowners with a lot less in home value than they had five years ago.

Getting a reverse mortgage with the potential to increase cash flow could be a viable alternative to selling at a loss.

How equipped is your home for your needs?

A borrower is allowed to use reverse mortgage proceeds however he or she so chooses.

One way some borrowers choose to use their proceeds is to make home improvements or modifications so that the home is better suited for aging in place.

Some changes to consider may be:

  • Wheelchair accessible ramps or chair lifts
  • Wider door frames
  • Adding additional lighting
  • Living quarters on the main floor
  • Door pulls and handrails for easier access

Changing your home to meet your standards of living through a reverse mortgage could allow you to remain in the home where you live rather than moving into a new residence.

Deciding where to live in retirement and whether you will move away from the home where your family has lived for years is a major decision, as is taking out a loan to help you meet your financial needs in retirement.

Top 5 FAQs

How do I know if the reverse mortgage will work for me?

The answer to whether a reverse mortgage will work for you will vary from person to person depending on their individual circumstances.  The reverse mortgage is a great loan but that doesn’t mean that it works for everyone depending on their situation.  Ultimately a homeowner needs to assess where they are at in life with regard to finances and expenses, where they want to live during their retirement years or for the foreseeable future, what is the best case scenario and worst case scenario of the options they have, and then find out if the reverse mortgage can help them accomplish those goals.

 

Are there any alternatives to a reverse mortgage?

Yes and No.  A conventional mortgage is an alternative to the reverse mortgage that a homeowner can look at to do a cash out refinance.  However, that will come with a mandatory monthly mortgage payment due every single month.  As of January 2020, the reverse mortgage is the only loan that requires no monthly mortgage payments.  If a homeowner is looking to get out from under their current mortgage an alternative to the reverse mortgage is to sell their current home.  The downside to selling your current home is that you have to live somewhere and you have to assess what you can afford to buy once you sell your current home if you do not consider the reverse mortgage.

What if I do not want to stay living in my current home?

This is a very important factor in determining whether to get a reverse mortgage or consider an alternative option.  If you are wanting to sell your current home the reverse mortgage may not be a good option for you on your current home.  However, a reverse mortgage can be used to purchase a new home, so many times homeowners who do not wish to stay in their current home will sell that home and then use the reverse mortgage to buy their next property to allow them to maximize their assets rather than having to buy a home outright for cash and depleting those assets.

 

Can you lose your house with a reverse mortgage?

Yes.  While there are no monthly mortgage payments that you can default on, there are other ways that you can default on a reverse mortgage.  When you have a reverse mortgage, you as the homeowner are required to pay your property taxes and maintain adequate homeowner’s insurance as well as occupying the property as your primary residence.  Failure to meet these requirements could result in the loan being called due and payable.

How long can I stay in my house if I get a reverse mortgage?

When you get a reverse mortgage on your home you can stay in your home for as long as you are living in the property as your primary residence and maintaining the taxes, insurance and upkeep of the home.  If all these requirements are met, you can live in the home for the rest of your life no matter how long that is without making a mortgage payment.

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