Posted by Chad E. Smith
If you are well into your retirement years and you own your home, a reverse mortgage can be an added source of income if you need cash and you have no heirs, or if your heirs are unconcerned about inheriting your home.
A reverse mortgage is a loan based on the value of your home that you don’t have to repay until you move, sell your home, or die. When you die or move, the loan is repaid.
Unlike traditional loans, a reverse mortgage requires no income to qualify. But it generally comes with a host of fees, making it more expensive than a traditional mortgage. The longer you wait before doing a reverse mortgage, the more money you’ll be able to get out of your home.
Reverse mortgages come in several varieties, including programs that pay you a lump sum rather than a lifetime monthly emolument, programs that give you a credit line, or a combination of both. Be especially wary of any program that allows you to get all or most of the money up front. Receiving a large sum of money or a credit line may tempt you to use the money imprudently. It’s far safer to opt for the monthly payment program.
Carefully evaluate whether other options such as selling your home might make more sense than a reverse mortgage. The financial benefits of selling your home and using the proceeds to buy or rent a new home—possibly a smaller and more affordable one—might outweigh the benefits of a reverse mortgage.
The permanence of a reverse mortgage shouldn’t be taken lightly. The equity in your home is like an insurance policy—a reserve that is there for you should you find yourself in serious financial need. Tapping into it through a reverse mortgage is like cashing in a life insurance policy. It’s a good idea to talk with your family, or with a trusted insurance advisor, before you make your decision.
If you decide that a reverse mortgage isn’t right for you, whole life insurance or annuities are other options for income in retirement. To learn more, call SBLI at 1-800-438-7254.