For many retirees, their home represents a significant portion of their assets. Deciding whether to use that asset to help fund retirement and, if so, the best way to access it is an important decision.
What is a reverse mortgage?
A reverse mortgage on your home is one option. It allows you receive either a lump sum or series of monthly payments based on the amount of equity you have in your home and its appraised value. One advantage is that you get to keep your home for as long as you live in it. Another is that you don’t have to make any interest or principal payments during the life of the loan. You must be at least age 62 to qualify.
Disadvantages of a reverse mortgage
However, there are some significant disadvantages. Setup and ongoing costs can be significant. With each monthly payment made to you, the equity in your home shrinks based on the payments you receive and any service charges that are imposed.
Other things to consider
- The income or lump sum you receive could impact you or your spouse’s eligibility for various state and federal benefits, including Medicaid
- Depending on the laws of your state, a reverse mortgage may not enjoy the same home-equity protection that would otherwise apply against creditors
- If your wish is to leave your home to your heirs, a reverse mortgage will reduce the amount of equity in your home, compromising your wish
Other options to a reverse mortgage:
- selling your home and then downsizing or renting
- taking out a home equity loan or line of credit
- getting help from your children or local government assistance program.
There is no right answer for everyone when it comes to deciding if a reverse mortgage is a good idea. Looking at your all of your alternative sources of income in retirement is the best place to start.
An independent Registered Investment Advisor can help you collect the information you need to make an informed decision. Please feel free to contact me at (610) 999-3599 for a no-cost, no-obligation review.
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