Is a Reverse Mortgage Right for You? 3 Key Considerations

January 22, 2024

Like many of our readers who are navigating retirement, you might wonder if a reverse mortgage is right for you. You’ve likely seen your equity grow substantially, possibly even owning your home outright – a common scenario for many baby boomers.

Your home, often your largest asset, may lead you to consider the option of a reverse mortgage. At All Reverse Mortgage, we understand the importance of this decision. This article integrates our insights with 3 important questions, helping you evaluate whether a reverse mortgage fits your financial future.

We’ll guide you through understanding the pros and cons of a reverse mortgage, ensuring you make a choice that aligns with your retirement goals and financial stability.

Table of Contents

• 1. Do you wish to stay in your home?

• 2. How equipped is your home for your needs?

• 3. Do you meet the minimum qualifications?

• Reverse Mortgage Suitability Checklist

• Suitability FAQs

Ask yourself these three important questions to determine if a reverse mortgage is right for you:

1. Do you wish to stay in your home?

This is the most important question to ask yourself if you are considering 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 most Americans, you wish to remain in your home while you age, this type of loan, designed expressly for aging in place, is an option to consider.

2. How equipped is your home for your needs?

Borrowers can use reverse mortgage proceeds however they choose. Some use their proceeds 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 living standards through a reverse mortgage could allow you to remain in your home rather than move 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 significant decision, as is taking out a loan to help you meet your financial needs in retirement.

3. Do you meet the minimum qualifications?

To qualify for a reverse mortgage, you must be 62 and have substantial home equity. All existing loans on the home must be paid off. Borrowers can use loan proceeds to pay off the existing mortgage and then 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 less 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.

Reverse Mortgage Suitability Checklist

Suitability Factors	Good Fit for Reverse Mortgage	Poor Fit for Reverse Mortgage
Age and Home Equity	Older homeowners with significant home equity	Seniors with little equity
Long-term Plan	Plans to stay in the home for many years	Plans to move or sell the home soon
Financial Situation	Need for additional income, with limited cash flow options	Stable income sources that cover living expenses
Legacy Concerns	Less concerned about leaving home equity to heirs	Wants to preserve maximum home equity for heirs
Maintenance and Expenses	Able to maintain home and keep up with property-related expenses	Difficulty in maintaining home or paying property taxes and insurance

This table outlines factors like age, long-term plans, financial situation, legacy concerns, and ability to maintain the property. For each factor, it describes scenarios where a reverse mortgage might be a good or poor fit. This format helps individuals evaluate their circumstances in relation to the typical suitability criteria for reverse mortgages.

Suitability FAQs

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

The reverse mortgage is an outstanding loan, but that doesn’t mean it works for everyone, depending on their situation. The answer to whether a reverse mortgage will work for you will vary from person to person, depending on their circumstances. Ultimately a homeowner needs to assess where they are at in life regarding finances and expenses, where they want to live during their retirement years or for the foreseeable future, what 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 when doing a cash-out refinance. However, that will come with a mandatory monthly mortgage payment due every single month. The reverse mortgage is the only loan that requires no monthly mortgage payments. If a homeowner wants to get out of 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 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 significant factor in determining whether to get a reverse mortgage or consider an alternative option. If you want 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. When you have a reverse mortgage, you, as the homeowner, must pay your property taxes, maintain adequate homeowner’s insurance, and occupy the property as your primary residence. Failure to meet these requirements could result in the loan being called due and payable. While there are no monthly mortgage payments you can default on, there are other ways to default on a reverse mortgage.

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 there for as long as you live in the property as your primary residence and maintain the home’s taxes, insurance, and upkeep. 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.

How to get the most out of a reverse mortgage?

The homeowners who get the most out of a reverse mortgage are those borrowers who owe very little or nothing on their home at the time of seeking a reverse mortgage loan. The higher the equity position in the home, the more proceeds a borrower will have. Any existing mortgage(s) or lien(s) must be paid off when obtaining a reverse mortgage loan. Additionally, the lower the interest rate obtained on the reverse mortgage, the more a borrower will receive. Since the current interest rates in effect at the time of application play a direct role in the loan-to-value a borrower will receive, it is beneficial for homeowners seeking a reverse mortgage to try and get as low an interest rate as possible.

Important Considerations on Reverse Mortgages

ARLO recommends these helpful resources:

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Have a Question About Reverse Mortgages?

Look no further. Michael G. Branson, our CEO, brings a wealth of knowledge directly to you. With a robust 45-year tenure in mortgage banking and 19 years dedicated solely to reverse mortgages, he's the expert you want on your side.

Post your question in the comments below and anticipate a personalized response from Mr. Branson himself, typically within one business day. He's here to illuminate all angles of reverse mortgages, ensuring you're equipped with the knowledge to make informed decisions. Take this opportunity to gain insights from a seasoned professional.

8 Comments on this Article

Doreen
August 31st, 2024

If my mother is 89 yrs old and has a mortgage of $90,000. I believe her home is worth conservatively $250,000. But she is struggling to keep up with her monthly payments. Some outside repairs of $25,000 which would considerably increase the equity. She's old but not dying yet. Would a reverse mortgage to reduce her monthly expenses be beneficial?
Reply to Doreen
- Michael Branson
  August 31st, 2024
  
  Hello Doreen,
  Ultimately, only your mom, possibly with your input, can make the final decision, but she might indeed be a perfect candidate. At 89 and in good health, there's no reason why she shouldn't be able to live comfortably in her home. If she doesn't use all the available funds and borrows judiciously, she shouldn't accumulate a large balance. Meanwhile, she can eliminate her monthly payments, complete the necessary repairs, and likely enjoy her home much more for the remainder of her time there.
  I recommend that you both take the time to learn about the program, including what will need to be done when she passes away or can no longer live in the home as her primary residence. If the reverse mortgage aligns with her needs and your goals, it could be the ideal tool to help her maximize her enjoyment of the home during her remaining years. You're rightâ€”many times, the repairs and improvements enabled by a reverse mortgage not only make the home more comfortable for the borrower but can also increase the property's value.
  Reply to Michael
Johnny B.
September 18th, 2022

Reverse mortgages should be avoided at all costs. They are merely tools designed to transfer more real property into the hands of corporate landlords and speculators. Like many other comments have indicated, they are filled with traps for the unwary.
Reply to Johnny
- Michael Branson
  September 18th, 2022
  
  Johnny,
  This reflects the reality we encounter every day. Are reverse mortgages suitable for everyone? Certainly not. However, they serve a significant purpose for many seniors. If you comprehend how the loan functions and how it aligns with your needs and objectives, it can be an invaluable retirement resource. Contrary to your portrayal, they are not merely instruments for banks, "corporate landlords, and speculators" to acquire your home.
  Homeowners control how much they borrow and the timing, influencing interest accumulation. While living on the property and keeping up with taxes and insurance, borrowers are not obligated to pay the loan, though they have the option. If borrowers choose to make payments to reduce accrued interest, they can, thus preserving their equity.
  It's the borrower, the homeowner who invested in and paid for the home who decides how much equity to utilize, not the lender or any corporate entities. There's no penalty for prepayment if the homeowner opts to make early payments, including paying off the loan in full.
  My Mother's Reverse Mortgage Experience
  I often share that the first reverse mortgage I processed was for my mother. With 30 years in the mortgage industry, I hadn't dealt with reverse mortgages until my mother inquired about them, prompting my research. It turned out to be the perfect solution for her. After owning and paying for her home over 40 years, she found herself financially stretched mid-month in retirement. My siblings and I weren't concerned about inheriting less; after all, the home was hers due to her years of saving and effort, not ours. She had no reason to struggle when she had an asset that could enhance her retirement years. She wisely avoided a lump-sum option, opting for enough to cover necessary repairs and a monthly payment that supported her hobbies and social life. She often praised her reverse mortgage for improving her quality of life. While not everyone's experience is the same, complaints about reverse mortgages often come from those who haven't had one, disappointed heirs, or those facing title or other issues after a borrowers death, situations we strive to assist with whenever possible.
  For my mom and many others, a reverse mortgage provided significant relief. Some borrowers may have yet to consider or have heirs who are self-sufficient, making a reverse mortgage a viable option for using their equity as they see fit. Yet, for those concerned about their heirs' ability to manage the loan after passing, a reverse mortgage might not meet their objectives. These seniors face the difficult decision of finding affordable housing alternatives. It's not that the loan is inherently bad; it may simply not align with their specific goals.
  In summary, I'm equally skeptical when I hear broad statements warning against reverse mortgages or overly praising them without understanding an individual's situation. Neither extreme view is accurate, and both can be misleading.
  Reply to Michael
Mila
May 18th, 2020

Hello Arlo,

I am 68. The value of my home is $1,200,000. My outstanding mortgage balance is $176,000. I am single. I can afford my monthly expenses. But I have only $30k in savings.
Reply to Mila
- Michael Branson
  May 18th, 2020
  
  Hello Mila,
  This is a personal decision that only you can make. Let me ask you a few more questions to help guide your thought process:
  1. What are your plans regarding staying in or selling the property over the next five years or longer?
  2. Do you intend to leave the home to family members, such as children?
  3. Are your current income and savings sufficient for your needs, or are there things you wish you could do but find that your financial resources are limiting you?
  If you're considering moving in the next few years, perhaps to downsize or to buy a home that better suits your needs and is closer to family and friends, I would generally advise most borrowers against getting a reverse mortgage now.
  However, in your case, the decision depends on your preference. You have substantial equity, and a reverse mortgage could eliminate your monthly payment, freeing up some funds for home improvements, travel (when possible), or other desires, while still leaving a significant amount of equity for future use.
  If your goal is to leave the largest possible asset to your heirs, the best approach would be to avoid taking out any loans and to pay off any existing loans. This way, your heirs would inherit the most substantial asset possible, free of any liens.
  Should you decide not to move soon and feel that your financial resources are insufficient for comfort, a reverse mortgage might be an excellent option, regardless of your desire to leave a significant asset. A reverse mortgage does not require monthly payments, but you can make payments at any time without penalty.
  You could opt for a reverse mortgage and choose to make regular payments to prevent the loan balance from increasing, using the funds only as needed or desired until you sell the home or leave it to your heirs. This strategy allows you to use the funds sparingly, minimizing loan balance growth due to accruing interest. If you're not concerned about leaving an asset to heirs, you could stop making payments, and the money previously used for payments could support your living, medical, or entertainment expenses.
  Additionally, with proprietary programs that do not require mortgage insurance, initial costs are lower than those of the HUD, government-insured program, which means you wouldn't significantly increase your loan balance with loan costs alone.
  Given your strong equity position, exercising even minimal caution with your withdrawals can help ensure that you don't use your equity unwisely or unnecessarily increase the loan balance.
  As I mentioned at the beginning, there is no universally right or wrong answer regarding reverse mortgages. Everything depends on your individual circumstances, needs, and goals. I strongly recommend discussing this with your family, a trusted financial advisor, and a reverse mortgage specialist, with all options laid out in front of you. This way, you can make an informed decision.
  You certainly seem like you could benefit from a reverse mortgage, but ultimately, only you can make that determination.
  Reply to Michael
SJV
April 27th, 2020

Like to know I could use reverse mortgage in my situation; down size from my current home to right size into a smaller home. Do not have enough income to obtain a conventional mortgage. Would a reverse mortgage be right for us and what is the best approach?
Thanks
Reply to SJV
- Michael Branson
  April 27th, 2020
  
  Good Afternoon,
  
  I could not say for sure without seeing all of your circumstances but I can tell you that many of our customers are doing exactly what you describe so not only can it be done, but it works very well for many of them.
  You can use the proceeds for the sale of your current home and then without having to pay for the next home with all cash, live in the home for life without having to make a mortgage payment (you do need to be able to pay the taxes and insurance and any other property payments such as HOA charges if any on time).
  The best way to proceed is to first get preapproved and then when you know you qualify and for how much, then shop for your new home knowing what you can buy in advance. Your loan officer can tell you what precautions you need to take to be sure that you choose a property that is HUD eligible.
  
  Qualifying is not hard if your credit is good with no late payments in the past 24 months, especially on mortgage payments, taxes, insurance or any other property related payments.
  Qualifying is much easier than a traditional mortgage as HUD uses a residual income method wherein you just must have a minimum amount of money left to live on after all payments are made each month.
  If you do not meet their requirements, there might also be other options asset dissipation (where the lender uses assets as a form of income) or possibly you can consider another property alternative.
  Reply to Michael

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