Reverse mortgages allow Baby Boomers 62 and older to use their home equity now for supplemental income without having to pay any of it back until they move, the home is sold or the borrower(s) dies. Then, the home is sold and the lender gets paid first while you (or your heirs) receive the remainder. Meanwhile, you continue to live in the home without having to make house payments. “Sounds good,” you say? Well, maybe, but maybe not too – It depends.
What are the Requirements to Qualify for a Reverse Mortgage?
- At least one homeowner must be 62 years of age.
- You must reside in the home as your primary residence.
- Your home must be either a single-family home, two to four-unit owner-occupied home, townhouse, approved condominium unit, or certain manufactured homes.
- You must attend an educational HUD-approved counseling session by phone or in person.
What’s the upside for Boomers?
For Boomers who reside in mortgage-free homes (or a residence with lots of equity) and want to enjoy a supplemental income or need money for a large expense (such as a medical or to buy a second home) without ever having to make monthly payments on it, a reverse mortgage can be a good thing.
What’s the Downside for Boomers?
Reverse mortgages come with “gotchas.” Upfront costs and fees (which can be high) impact the amount of money one can receive monthly or withdraw to cover extraordinary expenses. And since the amount Boomers receive comes from the remaining home equity after the original mortgage is paid off by the lender, it may not meet your expectations. Plus, once entered into, you lose flexibility in managing what may be a Boomer’s major retirement asset (i.e., your home equity).
If you have a large existing loan on your home, then a reverse mortgage may not work for you. It depends on how much equity would be available after the original loan is paid off by the new “reverse mortgage” lender. Other considerations are:
- The amount you’re able to borrow depends on your age as well as the value of your home.
- You must continue to pay property taxes, HOA fees, and homeowners insurance.
- Loan interest is not deductible until the property loan is paid off.
Fast Reads for Interested Boomers
- FTC Consumer Information
- HUD – Frequently Asked Questions about HUD’s Reverse Mortgages
- Are Reverse Mortgages Helpful or Hazardous?
The Bottom Line for Baby Boomers
Reverse mortgages are tricky. They could be the answer to your prayers or your worst nightmare. That’s why required independent counseling is mandatory before entering into a loan. There may be better options out there.
What bothers me (and should bother you) is that there are no online free calculators to determine how much income one could receive through a reverse mortgage without disclosing personal information and setting yourself up for countless phone calls from sales people. We suggest Boomers do some upfront reading on the subject and then talk with a trusted financial adviser before getting involved with lenders.