Educational Consumer Tips
Better Business Bureau
A reverse mortgage is a popular, but complex, home loan just for senior homeowners. If you qualify for a reverse mortgage, you will not have to make monthly payments on the loan. Instead, the lender pays you. Typically, the loan is repaid from your home’s equity when you sell the home, move out permanently, or die. You, or those who will inherit from you, can keep any sales proceeds from your home in excess of what you owe the lender.
To qualify for a reverse mortgage, you must be a homeowner who is at least 62 years old. The mortgage on your home must be fully or nearly paid off. Generally, the amount you can borrow depends on the value of your home, the amount of equity you have in the home, and your age at the time of loan application.
But is taking out a reverse mortgage right for you? Look beyond the advertising of these financial products, consult your family, and talk with independent financial advisors who would not benefit from the transaction.
You can remain in your own home and retain ownership
You do not need an income to qualify
The money you receive from the loan is tax-free
You do not have to make monthly payments
You can tap into your home equity to improve the quality of your life
You can realize more financial independence in the short term
Loan costs can be substantial
Fees earned by mortgage brokers are high
Reverse mortgages are more costly to set up than other types of loans
Advertising hype may not help you determine whether the loan is right for your circumstance, and likely understates the long-term costs
Interest and fees are added to your debt
Cost are higher for younger seniors (i.e., age 62; the loans should be considered a last resort if you appear poised to outlive your savings)
If you sell your home, the loan may become due for payment.