Thinking about getting a reverse mortgage? 

In many ways, this type of loan is quite different from other types of loans you’re probably familiar with. To get the details of how it works, check out our article, “How does a reverse mortgage work?”

The short version is a reverse mortgage is a form of loan that can be applied for by homeowners who are at least 62 years old and have a large amount of home equity.

If you meet those requirements, then a reverse mortgage gives you the option of taking out a loan against the value of your property. The funds can be given to you as a one-time payment, a fixed sum to be paid each month, or a line of credit.

Because not many people know much about it, it is common for people to ask, “is a reverse mortgage a good idea?”

Below, we lay out the good and not-as-good points about reverse mortgages so you can decide if one is right for you.

Is A Reverse Mortgage A Good Idea?

It’s possible that getting a reverse mortgage will be beneficial to your financial situation in retirement. But this is typically only the case in a limited range of scenarios. 

In fact, if you really need the money badly, it could be an expensive way to borrow it. 

A reverse mortgage can be a great financial tool for retirees who do not have considerable financial assets or investments but who have accumulated substantial equity in their houses. 

You can use it to convert an asset that would typically be illiquid into cash so that you may pay for retirement expenses. This can be a big help in keeping up with your monthly payments even if you no longer have a big source of income.

If you plan to stay in your home for the foreseeable future, it can make sense to consider getting a reverse mortgage. It can be a way to help you stay in your home and not have to move to a less expensive home. Or move to an area that’s not as close to friends and family. 

So while there are fees you’ll have to pay to get a reverse mortgage, it still may be less expensive than relocating and buying or renting a new property. 

Some Risks of a Reverse Mortgage

If you cannot pay your property taxes, homeowners insurance, HOA fees, and any other costs associated with homeownership, you should avoid getting a reverse mortgage. 

If you fall behind on these payments during the course of the reverse mortgage’s term or if you spend most of the year living outside the home, you risk the possibility of defaulting and losing your home to the process of foreclosure. 

So as you can see, a reverse mortgage is not a perfect deal. And although it is great for some, it may not be for others. It’s a good idea to talk to a fee-only financial planner (one that does not sell reverse mortgages) to see if it could be a good idea for you and your situation.

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