You’ve seen the commercials with Robert Wagner extolling the wonders of a reverse mortgage. Is he trying to sell you a bill of goods? Is a reverse mortgage worth it? That depends.
What exactly is a reverse mortgage? Reverse mortgages are available to homeowners who are 62 and older. To be eligible, you must live in your home as your primary residence.
Reverse mortgages work in a different way than traditional mortgages. With a traditional mortgage, you make payments to a lender. In a reverse mortgage the lender makes payments to you. The exact amount you receive will be based on the value of your home. Also a reverse mortgage allows you to keep your home.
There are few ways to get paid with a reverse mortgage. You can opt for a lump sum payment, a credit line, a monthly payment, or a combo of the three.
Which you choose depends on your situation and how you want to use the money. Some just want it as a supplemental income. Some need it for a one time expense and others want to use the money as sort of a rainy day fund for emergencies.
A reverse mortgage is only viable if you have a big chunk of equity in your home. If you still have a small mortgage you will need to talk to a financial adviser to figure out your best options.
Where the reverse mortgage sort of matches up with taritional mortgages is with fees. There are closing costs like in regular mortgages. Then there are loan originiation and appraisal fees. The lendr may charge loan servicing fees an mortgage insurance premiums.
Know what the funds will be used for.
Have a plan. Before you embark on a reverse mortgage it is important to have figured out what you will use the funds for. If your in your early 60s you’ll have to make sure you don’t spend your money too frivolously to make sure you don’t run out later in retirement.
Check out other options
If you’re short on dough, don’t have any family that wants to inherit your home, and you don’t want to leave it, then a reverse mortgage might be for you. If you have other assets or income other solutions might be a better fit. You can sell your home to your kids or refinance your mortgage.