Are Reverse Mortgages a Good Idea?

With increases over the past several years in regulations protecting borrowers, reverse mortgages are being considered viable options for helping some people fill gaps in their retirement income. However, the question of, "Are reverse mortgages a good idea?", is solely dependent upon several factors. These factors relate directly to the individual or couple looking to enter into a reverse mortgage agreement.
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If you are wondering are reverse mortgages a good idea, we welcome you to read this reverse mortgage information article and learn whether or not you may be a good candidate for one*. Reliable, unbiased information about reverse mortgages can be difficult to come by. If you are looking for trustworthy information about reverse mortgages, it is important to consult organizations that have no direct financial stake in whether or not you enter into a reverse mortgage agreement.

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Information About Reverse Mortgages

According to the Federal Housing Administration, approximately 30,000 people entered into a reverse mortgage in 2016. This number is down significantly from the peak of the reverse mortgage boom in 2009, which saw over 115,000 of these types of home loans processed. During the boom of 2009, the reverse mortgage market was deregulated, which ended up causing serious issues for many borrowers.

However, increased lender regulation has afforded better protection for borrowers. Even with more protection, you still should ask yourself “Are reverse mortgages a good idea for me?” based on your specific situation--instead of relying on existing industry safeguards, which might not apply to your situation anyway when push comes to shove. The following information about reverse mortgages can help you decide whether or not you are an ideal candidate for a reverse mortgage…

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Who is the Ideal Candidate for a Reverse Mortgage?

1. Someone in good health. According to the National Endowment for Financial Education, a good candidate for a reverse mortgage is in their late 60’s, and is in overall good health with over 15 years of life expectancy. Although the law states that all reverse mortgage borrowers must be at least 62 years of age, if you plan to ‘age in place’, which means being able to stay in your current home for the duration of your life, then you might be a good candidate for a reverse mortgage. This is because the loan costs you will accrue may significantly cut down on the amount of money you would receive upon the sale of your home. Should you not be able to maintain financial and maintenance obligations, or should your health falter and you need to sell your home before you pass away, you might not be left with much, if anything at all once the reverse mortgage is paid off.
2. Someone who can afford upkeep. Reverse mortgage lenders expect you to keep current on property taxes, insurance and maintenance while you remain in your home. Should you fall behind on any of these obligations, you can end up defaulting on the reverse mortgage and the lender may choose to foreclose. Additionally, if you end up being unable to maintain these terms and have to sell your home prematurely, you could end up with little to no money after the sale to find a new place to live. Therefore, it is extremely important to make sure your pension, Social Security benefits, retirement accounts, or any other sources of income are sufficient to cover both expected and unforeseen upkeep expenses that might arise.
3. Someone with a low debt and high equity. If you have a valuable home with significant equity, or that is paid off in full, then you might be a good candidate for a reverse mortgage. This is because you will remain in your home while receiving money to supplement your cost of living expenses. However, it is important to understand that by taking out a reverse mortgage, you are depleting the equity in your home. What is more, because your reverse mortgage will come due once you are no longer alive, you might be depleting the assets you will leave your heirs. If this is not a concern for you, then you might be a good candidate for a reverse mortgage.
4. Someone with stable retirement income. This especially applies to co-borrowers and borrowers with spouses who will be a widow or widower upon your passing. Keep in mind that in some cases, pension funds and other sources of retirement income stop when the principal passes away. In these cases the survivor not only loses a spouse, but also the spouse’s income. This makes it extremely important to plan for the surviving spouse’s ability to handle all financial obligations that will keep the reverse mortgage in good standing once his or her partner is gone. Although as of August 4, 2014, retirees (both borrowing and non-borrowing) cannot be foreclosed upon due to the death of their spouse alone, the lender can indeed foreclose if the surviving spouse cannot maintain financial obligations.

More Reverse Mortgage Information

Before applying for a federally insured reverse mortgage covered by the US. Department of Housing and Urban Development (HUD), you are required to meet with a counselor from an independent, government approved housing counseling agency. Your counselor will go over the loan’s cost, as well as any financial implications you should be aware of. This consultation can be incredibly helpful in deciding are reverse mortgages a good idea for your situation. You can visit HUD for a list of counselors, or call the agency at 1-800-569-4287 to learn more. Please note that counseling agencies usually charge for their services. However, their fees can be paid from the loan proceeds, and you cannot legally be turned away if you can’t afford the consultation fee.

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Reverse Mortgage Alert: Find Reverse Mortgage Lenders

If you feel as though you would be an ideal candidate for a reverse mortgage, the next step is starting to shop around for the right lender. Retired Brains has found an excellent informational website called Reverse Mortgage Alert you can visit to assist with the shopping process. The Reverse Mortgage Alert website has some very useful information for first time borrowers that can help reduce the confusion and stress often associated with the reverse mortgage process. This includes compiling lender information, providing a reverse mortgage calculator, offering information on the pros and cons of reverse mortgages, and a very informative fact sheet to help empower you in your decision making process. Please visit Reverse Mortgage Alert to learn more.

*Retired Brains is not a reverse mortgage lender, and we do not provide direct or indirect advice on whether or not you should enter into a reverse mortgage agreement. Our sole purpose is to provide you with information that can help you decide if you would like to find out more about whether or not a reverse mortgage is right for you. Therefore, we cannot be held legally or financially liable for your personal decisions. If you have any questions about a current or potential reverse mortgage agreement, we urge you to contact a professional adviser who can help you find the answers you seek.