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Savings for the Seniors


Reverse Mortgages: A Retirement Tool, but Beware of Risks

Many people are considering reverse mortgages as part of their retirement portfolio for many reasons. Seniors in retirement are having…

By Senior Savings , in Savings , at July 3, 2019


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Many people are considering reverse mortgages as part of their retirement portfolio for many reasons. Seniors in retirement are having financial difficulties while their home is building enough equity to help them bring in additional income. Some are struggling with payments on their credit cards or managing their monthly bills. If you are trying to figure out how to make ends meet month to month, it may be worth it to look into reverse mortgages.

What are Reverse Mortgages?  

A reverse mortgage may be an option for you if are over 62 years of age and own your home with a paid-off mortgage. When you take out a reverse mortgage, you are taking out a loan against the equity of your home. It’s great for those who need the additional income especially because you are not required to pay it back as long as you abide by the loan agreement and don’t put your house on the market.

Sounds too good to be true? Let’s take a look at the risk involved.

  1. You have to make sure that you live in the home and do not put it up for sale. A reverse mortgage is only applied if you own your home and remain with it in your lifetime. It means that you have to be sure you don’t plan on relocating or moving, which is an easy decision for some. If you put your home on the market, you will have to repay the loan.
  2. You have to pay fees that can add up to thousands of dollars. Taking out a reverse mortgage can be costly with the fees involved. There are origination fees, financing fees, insurance fees, and monthly servicing fees.
  3. In the event of your death, your heirs are responsible for the loan and that also means the interest. Remember we said that you didn’t have to pay back the loan, that was true. But someone has to pay it back eventually after your death. Your heirs have the option to pay back the loan, sell the house and apply it towards the loan or give permission to the lender to sell the home and settle the loan.
  4. A lender can request you pay back the loan.  If you do not follow your loan agreement, you will be required to pay back the loan amount to the lender. This applies if you sublet your home, add another person to the title, do not pay for propriety taxes, file for bankruptcy, or if you change your zoning classification.

The Verdict

Yes, you can use reverse mortgages as a retirement planning tool, but beware the risk. It’s great to receive the lump sum amount or monthly cash advances to support your retirement future. But you have to plan accordingly and ensure that you have an arrangement on how the loan will be repaid. It’s something that requires financial discussion and a strategy before applying for a reverse mortgage loan. Overall, it’s not a bad idea and can help you substantially as you enjoy the benefits of your retirement.