Is a reverse mortgage right for me?

For many retirees, living on a fixed income is a daily reality.  When you consider the rising costs of living this means that your purchasing power decreases over time with a fixed income.  In other words, Daddy can’t buy as much bacon for $5.00 as he could a few years ago.  And who wants to live in a world where you are deprived of your desire for endless amounts of bacon with every meal?  It’s just not right.

 

Enter the Reverse Mortgage. Investopedia.com defines it as, “A type of mortgage in which a homeowner can borrow money against the value of his or her home.  No repayment of the mortgage (principal or interest) is required until the borrower dies or the home is sold.”

 

Touted as a saving grace by nighttime infomercials across the land, a reverse mortgage may provide cash strapped retirees with extra monthly income to ease their financial pains.  They can use this money as they see fit, for general living expenses, taking a trip, and yes–buying more bacon.

 

The Pros

  • You can’t owe more than your home is worth.
  • Financial counseling is a requirement prior to obtaining the loan.
  • Ability to supplement a fixed income to cover daily expenses.
  • No repayment is required as long as the home is occupied and the borrower adheres to the terms of the loan.
  • Credit history and current income are not qualifiers for approval.

The Cons

  • If you no longer occupy the home, for example having to move into an assisted living facility, you stop receiving money.
  • It could affect government assistance programs like Medicaid or SSI.
  • The amount of equity left to your heirs is reduced.
  • You are not allowed to deduct interest on the loan until payments are made or the loan becomes due.
  • Fees are generally higher than other types of financing.

Conclusion

Through proper financial planning, saving, and investing it is possible to avoid having to turn to tactics like reverse mortgages.  However, in certain circumstances it may make sense.  Work with a trusted advisor (we would be happy to help tackle this question with you) and be sure to read all the fine print and do your homework before making a big decision like getting a reverse mortgage–it just might save your bacon.