If circumstances did not permit you to save as much as you wanted, or unexpected costs dented your retirement accounts, a reverse mortgage may be an option to consider.
Reverse mortgages can be very attractive solutions for retirees who find themselves short of funds, since a reverse mortgage will not impact Social Security or Medicare benefits. A reverse mortgage is exactly what it sounds like—a way to take tax-free cash equity out of your home, while you retain ownership.
But, as The Observer News warns in the recent article, “Reverse mortgages can be a key component in retirement planning,” there are pros and cons.
Many people like reverse mortgages because it’s really a loan option that can help homeowners ages 62 and older with equity in their homes enjoy a more comfortable retirement. You’re still able to live in your home and retain the title.
You can also receive cash at the closing and open a line of credit to access the rest, as needed, after a year. You receive monthly payments for a set period or for your lifetime. You can also choose any combination of these options.
Even if you have an existing mortgage, you may still qualify.
However, there are some disadvantages. Since you’re not making payments and receiving income, the loan balance increases as interest and fees accumulate. In addition, because your equity is decreasing, there’ll be less of an inheritance to leave your heirs. While they can still inherit your home, they must first pay any outstanding balance that you owe.
The reverse mortgage must be for your primary residence, and if you permanently move away or no one on the title is living in the home, the reverse mortgage is due immediately.
Bear in mind that closing costs and fees on reverse mortgages are higher than on traditional mortgages. Costs and fees are deducted from the loan proceeds, so you’ll be getting less money overall. On the other hand, you are no longer making mortgage payments. You’ll need to do a careful cost-analysis before signing the papers.
Reference: The Observer News (February 15, 2018) “Reverse mortgages can be a key component in retirement planning”