3 Reasons a Reverse Mortgage is a Good (or Great) Idea

If you’ve been considering a reverse mortgage like me, there is a lot to review.  After an extensive amount of reading and speaking with mortgage brokers, I’ve learned some common situations where a reverse mortgage works best.  I’d like to share them with you in this blog post.  

1. You don’t plan to move again

If you’re 100% sure that you have no plans to move, a reverse mortgage may be a good idea.  The reason for this is that a reverse mortgage becomes due and payable if the borrower moves, passes, or the house is no longer the primary residence.  So if you have a second home and think there’s a chance you might move there full-time, a reverse mortgage wouldn’t be a good option.  Or if you have kids that live far away, and you’ve considered moving closer to them, a reverse mortgage also wouldn’t be a good fit.  But if you’re in your forever home and want to leverage the equity you have, you are a prime candidate for a reverse mortgage.

2. You are physically able to maintain your home

Part of the requirements for a reverse mortgage is that the homeowner maintains the house.  When it comes time for the loan to be due and payable, there’s a chance that the house will be sold by your heirs or the bank.  The bank wants to make sure the house is in good condition so that they can sell it for maximum value.  So if you are in good health, and keeping your home in good condition is within your means, a reverse mortgage may be for you.  However, if you have a health condition (for example) that would prevent you from being able to maintain your home, it’s probably best to avoid a reverse mortgage.

3. You and your spouse are both over the age of 55

One of the basics for a Home Equity Conversion Mortgage (HECM) - the most common type of reverse mortgage - is that the borrower is 55 years old.  A few years ago, HUD changed the rules for HECMs that allowed a non-borrowing spouse to be younger than 62 years old.  This meant that as long as the older spouse was at least 55 years old, they could get a reverse mortgage and be the only borrower on the loan.  

There are definitely a few strings attached in this situation though.  First, the loan amount would actually be based on the age of the younger spouse, even if they are a non-borrowing spouse.  Ultimately, this means that the loan amount (and payments to the borrower) would be less.  

Next, If the older spouse passed away, the younger spouse would not be able to borrow any additional funds from the reverse mortgage since that person is not officially on the loan.  It’s important to know that the younger spouse would not be forced to leave the house in this situation though.  However, the most ideal situation is that both spouses are over 55.  It will certainly keep things simpler :)

Keep in mind that there are plenty of additional situations where a reverse mortgage may be a good choice.  This is just a starting point for some really common situations where they may work best.  As always, you’ll want to consult with a specialist if you have additional questions.  You can also find a lot of helpful tips on my blog [link to main blog page].  Thanks for reading!