Baby boomers and retirees are increasingly concerned as to whether or not they are going to outlive their retirement funds. Many simply didn’t save enough to be able to live comfortable in retirement and have found themselves in a lurch. As a result, many have turned to reverse mortgages as a way to get steady cash flow without having to change one’s lifestyle, but reverse mortgages come at a cost.
If you’re not familiar with a reverse mortgage, it’s a way for retirees to cash in on equity in their home. A borrower takes out a mortgage and receives payments every month. As the borrower receives payments from the bank their mortgage balance increases. When it comes time to sell your home at your death or when you move into an apartment or senior living center, the mortgage company is paid off with the proceeds of your home.
On face, it seems like an easy way to lessen cash flow burdens, but reverse mortgages come at a cost. Reverse mortgages often come with fees that are much higher than that of a traditional mortgage from a bank or a credit union. It’s also an area where there’s a lot of fraud. If you choose to proceed with a reverse mortgage, make have a real estate attorney review the loan documents and make sure that everyone in your family is on the same page regarding the decision.
Before going out and getting a reverse mortgage, consider other options which might improve cash flow. Do you have any other investments that you can cash out? Would it be better to sell your home and move into something smaller? Could making some lifestyle adjustments eliminate the need to take out a reverse mortgage? Reverse mortgages should be considered a last resort and you don’t want to sign up for one without making sure that it’s the only option.
If you do decide to get a reverse mortgage, do so with a lot of counseling from trusted friends and family members. Make sure to get multiple quotes from banks and credit unions. Use a reverse mortgage calculator so that you know what the math looks like and what kind of equity you or your heirs will have when the home is sold. A reverse mortgage can be a good option in some cases, but make sure you do your homework up front.