4 Signs You May be Ready for a Reverse Mortgage
For someone nearing retirement age whose home equity makes up the largest amount of their assets, the possibility of getting a reverse mortgage may be an attractive one. Not only will a reverse mortgage help you cover medical bills, retirement splurges, and daily living expenses, there are many advantages that make it more attractive than a conventional loan. You shouldn’t sign reverse mortgage papers lightly, however, and you will have to meet with a professional for reverse mortgage counseling before you go through with a potential reverse mortgage. There are, however, 5 indicators that can show you that your life circumstances may be ripe for a reverse mortgage.
1: You Don’t Plan on Moving
Some people, when they retire, are eager to downsize or move to a different location. A reverse mortgage will only be a viable solution if you have already paid off the majority of your mortgage and don’t plan on moving in the near future. There are a variety of reasons why this is essential. A reverse mortgage comes with a variety of fees at the beginning, meaning that you ought to see a reverse mortgage as a long-term solution rather than a quick fix.
In addition, once your property no longer becomes your primary residence you will have to repay the reverse mortgage. Most people get a reverse mortgage on the assumption that the loan will be paid back due to their house being sold after they pass away. Don’t try to use a reverse mortgage as a quick fix in a scenario it was never designed for.
2: You Can Afford Ongoing Homeowner’s Costs
Getting a reverse mortgage doesn’t mean abandoning all responsibility for your house. On the contrary, keeping up with property taxes, homeowner’s association fees, and home repairs is more essential than ever, since falling behind on any of these runs the risk of your reverse mortgage lender pulling out and requiring that you pay back your reverse mortgage. Having homeowner’s insurance is particularly important, since the payout in the event of fire, flood, or other disasters will help ensure that the collateral – otherwise known as your home – is still worth as much as your reverse mortgage is paying out to you.
3: Your Spouse is 62 or Older
One of the prerequisites for getting a reverse mortgage is that any borrower on the loan must be 62 or older. While you can still get a reverse mortgage if you are 62 and your spouse is younger, there are several complications that make waiting a few years’ worth it. If your spouse is under the age of 62, they won’t be able to receive the proceeds from your reverse mortgage if you pass away first, causing a serious reduction in income. In addition, having a younger spouse in the household means that you won’t be able to borrow as much from your reverse mortgage initially. In this case, waiting a few more years will pay dividends.
4: No Plans to Pass On Your Home
Over time, the idea of passing a family home onto one’s children has become less and less important. Many people nowadays choose to only put their spouse down to inherit their house. Because of the way reverse mortgages work, you should have no plans to pass on your home to your children once you die. While it’s possible for your children or heirs to buy back the house from the lender, it requires either cash or qualifying for a regular mortgage.
If they choose not to purchase back the house, the lender will sell it to recoup the amount of the loan. Any extra money they get from the sale will go to your estate. If there’s a negative balance, you will have likely been required to buy Federal Housing Administration insurance to cover the difference. This means that, as long as you don’t care if your children or heirs inherit your home, a reverse mortgage can be a big help.