You may have heard of this thing called a reverse mortgage as a way to provide liquid cash during your retirement. As you try and plan your finances for your golden years, you research a reverse mortgage to see if it can provide you with the liquidity you will inevitably need to cover medical costs, in-home care, home improvements and more.
It’s no secret that the financial world has more than its fair share of scammers and unscrupulous people looking to take advantage of you at a time when you can least afford it.
However, there are many reputable reverse mortgage lenders out there who help homeowners over the age of 62 tap into their property’s equity to help them remain independent.
Any honest broker will also tell you when a reverse mortgage is a bad idea. They’re not for everyone, especially since there are other options out there to help you financially during your retirement.
Below are a few reasons why a reverse mortgage isn’t the best option for you.
- You only plan to live in the home for another couple of years – since you must stay in your home to qualify for a reverse mortgage, the assorted fees and process isn’t worth it if you’ll only be staying in your home for another year or two. According to this article at Bloomberg, you should plan to stay in your home for at least 7-10 years to make a reverse mortgage worth it.
- You want to pass the home to your children – if you plan to pass your home onto your kids free and clear, you should carefully think about whether a reverse mortgage is right for you since they will need to pay the loan back after you pass away
- You’re currently struggling to pay your taxes and insurance – if you can’t comfortably pay your property taxes and insurance, you should most definitely steer clear of a reverse mortgage since the lender can foreclose if you can’t pay these expenses.
- You’re eligible for Medicaid – while a reverse mortgage doesn’t affect Social Security, Medicare or your pension, the funds you receive from your lender could put benefits like Medicaid at risk. If you think you may need assistance like this, you should be really careful about taking a reverse mortgage.
- You only need a relatively small amount of money – reverse mortgages do carry some costs in terms of fees, insurance and interest. If your needs are rather small, these costs will certainly outweigh any benefits, so carefully evaluate your needs and see if other options are available.
If you fall into one of these categories, consider other ways to either raise the funds you will need or cut costs.
Perhaps a traditional home equity loan or mortgage is a better idea, or maybe you should consider downsizing to more affordable living arrangements.
Whatever your situation, you should carefully evaluate each option and discuss them with trusted financial advisors, your spouse and your children before making any final decisions.