A reverse mortgage can be an integral part of a retirement planning portfolio. Understanding the advantages and disadvantages will help you determine if a reverse mortgage is right for you and your unique situation.
Here’s a look at some common pros and cons:
- Predictable cash flow from your home equity – You’ve been working hard to pay for your home for years, now you can reap the benefits of the equity you’ve accumulated.
- Allows you to stay in your home during for your retirement – A reverse mortgage is ideally suited for those that have equity and would prefer to stay in their home during their retirement.
- You have a ‘safety net’ for unplanned expenses – Having a reverse mortgage can be a smart way to plan for costly medical treatments. Unplanned, costly medical care can easily and quickly eat through your retirement savings.
- You will no longer have a monthly mortgage payment – Simplifying your financial life in retirement leaves you more freedom to enjoy yourself. With a reverse mortgage you can pay off debts, including your mortgage, and have fewer bills.
- The equity in your home may be diminished by the time it’s left to your heirs – Any spare equity at the sale of your home, after the loan has been satisfied, will be distributed to your heirs.
- You must live in the home to meet the criteria of the reverse mortgage – You will be asked to certify each year that you are still living in the home. If for instance a medical condition keeps you away for more than 12 months you will no longer be meeting the requirement of a HECM loan and your loan will become due. At this time your loan will become due.
- Costs for reverse mortgages can add up – Costs include appraisal fees, origination fees, closing costs, and mortgage insurance. Because HECM loans are backed by the FHA, they require a 2% initial mortgage insurance plus 0.5% annually of your outstanding mortgage balance.
- You will still have to pay property taxes, insurance, and upkeep – In some areas the cost of taxes, insurance and upkeep may become an unsustainable financial burden. This can be mitigated by setting up a LESA (Life Expectancy Set Aside) which
To learn more you can download our full eGuide, Ultimate Guide to Reverse Mortgages or setup a conversation with a qualified mortgage advisor.