A reverse mortgage can be a help to homeowners looking for additional income during their retirement years, and many use the funds to supplement Social Security or other income, meet medical expenses, pay for in-home care and make home improvements.
There are also flexible ways to receive money from the reverse mortgage: a lump sum, a monthly payment, a line of credit, or a combination.
Plus, if the value of the home appreciates and becomes worth more than the reverse mortgage loan balance, you or your heirs may receive the difference.
The opposite, however, can pose a problem: If the balance exceeds the home’s value, your heirs may need to hand ownership of the home back to the lender.
There are also potential complications involving others who live in the home with the borrower, and what might happen to them if the borrower dies. Family members who inherit the property will want to pay close attention to the details of what is necessary to manage the loan balance when the borrower dies.
“There are provisions that allow the family to take possession of the home in those situations, but they must pay off the loan with their own money or qualify for a mortgage that will cover what is owed,” McClary says.
Additionally, while not all reverse mortgage lenders use high-pressure sales tactics, some do use them to attract borrowers.
“It is always best to receive guidance from a nonprofit agency that offers reverse mortgage counseling before signing a loan agreement,” McClary recommends. “Taking advice from a celebrity spokesperson or a sales agent without getting the facts from a trusted, independent resource can leave you with a major financial commitment that may not be best for your circumstances.”
A reverse mortgage is a great solution for many, though not all. In the right situation, tapping home equity can be an incredible resource for finding new meaning and maximizing the possibilities of life.
Ask yourself:
What are my retirement goals? How close am I to accomplishing them?
Is my home meeting my needs?
How long can I live in my home?
Do I want to leave my home to my kids? Do they want that?
Would an unexpected expense take me off track?
Am I still working just for the money? Is that how I want to fill my time?
Where will I be in 5 years? Where do I want to be?
What excites me about life? Am I doing enough of it?
What dreams are left for me to chase? What’s holding me back?
Proprietary reverse mortgages
While HECM reverse mortgages account for more than 90 percent of all reverse mortgages made in the U.S., there’s a growing market for what’s known as a proprietary reverse mortgage, which is privately insured by the mortgage companies that offer them, says Hicks.
“Proprietary reverse mortgages generally have higher loan limits (typically up to $4 million) and greater flexibility with property types,” Hicks explains.
Proprietary reverse mortgages also come with many of the same consumer protections associated with the HECM program, such as mandatory counseling.