Reverse mortgage loans can be considered by any senior in need of funds. However, because of their fees, reverse mortgage loans may not always be the most effective choice if other options are available. Ask yourself the following important questions before making a decision:
Will you be moving soon?
Because the fees and other costs can be high, consider how long you plan to live in the home after taking out a reverse mortgage. It’s a less attractive option if you plan to stay in your home for only a year or two.
What is the value of your home?
The higher the value of your home, the more you get from a reverse mortgage. If your income is low, this can work in your favor by giving you a stream of payments for many, many years. The value of your home may even increase over those years, which can increase the amount you can borrow. Many retirees find this an attractive option because they are living on Social Security or a small amount of retirement income.
Do you want to buy a less expensive home?
Reverse mortgages aren't only for meeting your living expenses. Some retirees use the proceeds to help them buy a smaller, less expensive home. They then pay off the reverse mortgage and may have no monthly mortgage payments to contend with. The success of this approach depends on many things, such as the size of the proceed payments, the value of your current home, the price of the new home, and other financial factors such as taxes, insurance, and maintenance costs.
Do you want to keep the home after the loan is due?
To pay back a reverse mortgage, you or your heirs typically sell the home and use the proceeds to pay it off. But what if you don't want to sell it? What if you want to hand it down to your heirs? In that case, you will have to find another way to repay it in full, even if the balance on the loan exceeds the value of the home. There will often be little or no equity left once the reverse mortgage has come due.
Are you able to afford the taxes, insurance, and upkeep?
It is your responsibility to keep the home in good condition because it may need to be sold after you vacate it. Will you be able to afford taxes, insurance, and maintenance, even with the proceeds from the reverse mortgage?
Do you want to delay taking Social Security or other retirement benefits?
Another factor to consider is using proceeds to delay Social Security payments. The longer you put them off (up until age 70), the more you receive. Some seniors take out a reverse mortgage so they can delay Social Security payments until a later age.
Still others use the proceeds so their other retirement accounts can continue growing until some point in the future when they can be accessed.
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