When to Get a Reverse Mortgage

A reverse mortgage is a popular type of loan for retirees. It is a unique lending instrument that can be beneficial to you and your financial situation. Here are a few things to think about when considering a reverse mortgage. A reverse mortgage is designed to provide a monthly income to those that are retired and own their homes.

Eligibility

In order to get a reverse mortgage, you need to make sure that you are first eligible. To qualify for a reverse mortgage, you have to be 62 years old. In addition, you have to either have your house paid off or have a very low mortgage balance. Therefore, this is not a second loan or a typical refinance. 

When to Get One

Once you have determined that you are eligible for a reverse mortgage, you now need to decide if you need one and when to get it. Just because you can get a reverse mortgage does not necessarily mean that you should get one. When you set up the reverse mortgage, the bank is essentially paying you for the equity in your home one month at a time. This can come in very handy if both your retirement savings and social security payments do not meet your living expenses. If you need something more to supplement your monthly living expenses, a reverse mortgage should be considered. 

Considerations

If you decide that you need a reverse mortgage to, there are a few things that you will want to consider. The bank is essentially paying you for your house one payment at a time. Therefore, at the end of your term, they will have all of the equity. After they finish paying you, you do not have to move out of the house. They cannot kick you out if you do not want to go. However, they will have to be paid back at some point. When you or your spouse dies, you may have to use life insurance money to pay off the house. 

If you decide to move, the proceeds from the sale of the house will go towards paying off the mortgage and you may be left with nothing. This also makes it difficult on you if you wanted to leave your heirs something when you die. With this arrangement, the house would go to the bank unless they can pay it off. Therefore, this typically works better when you do not have to worry about giving the house to anyone when you are done with it.