A reverse mortgage is a special type of mortgage available to borrowers 62 years old and older. Essentially it allows borrowers to turn equity into cash with no payments for the life of the loan. Proceeds are based upon, the value of your home, your age and the programs available. A reverse mortgage is a complex financial transaction that is a life saving vehicle for some, but not an appropriate tool for everyone. Understanding a these loans and making sure it aligns with your personal needs and goals are crucial.
1. What do I want a reverse mortgage to do for me?
a. Do I want it to eliminate my house payment? Do I have unwanted debt or medical bills I need to pay? Would I benefit from more cash each month?
2. Do I plan to stay in my home for the long term?
a. These loans typically should not be used as a short term loan. It’s been said a reverse mortgage should be your last mortgage. Refinancing to attain more money is possible with home appreciation and age, however as we well know economic projection is not always reliable. Making prudent financial decisions can only benefit you.
3. Do I have the physical and emotional resources to remain in my home in safety and comfort?
a. Ask yourself is this the home I want to stay in for the long term? Do I have family, friends and resources to support me? Or do I have the financial resources to outsource anything I might need should I or my spouse need extra help?
4. If I become incapacitated, is my home rehab friendly?
a. Does my home have stairs? Is there a bedroom and bathroom downstairs? Many people are living longer than their knees and hips are lasting. Stairs that are easily scaled when healthy can prove a challenge for someone who has had recent surgery.
5. Does my home need or will it need any repairs of maintenance?
a. Ask your self is my home in good condition? Will I need a new roof, furnace, flooring or plumbing repairs? What about appliances? Many appliances need to be replaced every ten years or so. Will you have the funds for these items? Asking yourself these questions can be helpful in making the decision of how you take your reverse mortgage proceeds.
6. Can I afford to live in my home and pay for taxes and insurance?
a. Part of your agreement with your lender is that you maintain adequate insurance and pay your property taxes.
7. Do I fully understand how a reverse mortgage works?
a. A reverse mortgage is a negative amortization loan that can be a powerful cash flow tool when used correctly. It does not need to be repaid until all borrowers pass away or your home is sold. A reverse mortgage balance increases over time as your equity decreases. There are many details to a reverse mortgage contract. There are many legitimate consumer publications that will give you unbiased information, do your research. A good loan originator will encourage you to take your time and even give you suggested reading references.
8. Is it the right time for a reverse mortgage?
a. It is not only important that you know you are in the home you want to live in for a long time if not the rest of your life, but it is also important to know is it the right time for a reverse mortgage? As you age, you qualify for more proceeds, however currently we are in a down cycle in housing values. Is it prudent to take a reverse mortgage now or later? Should you sell, downsize and purchase with a reverse mortgage? Do you eventually want to move closer to family? If so you might consider waiting until you know. Would it be better if you continued to work part time and put retirement off a few years?
Reverse mortgage decisions are not usually made quickly. It may be a month to two year decision before you decide. Only you can make the decision that is right for you. I encourage you to make it an informed one.
Angella Conrard is licensed in several states including but not exclusively in California & Tennessee. She is designated as a Reverse Mortgage Specialist and is held to the highest standards by the National Reverse Mortgage Lenders’ Association and the National Aging in Place Council. Angella the president/founder of the National Age in Place Council- OC, the National Care Planning Council- OC