From a conceptual viewpoint, reverse mortgages appear to be a viable option for home equity rich persons over 62 years of age. I mention age, because only persons over 62 qualify for this type of mortgage. Reverse mortgages are the inverse of traditional mortgages. The borrower borrows against their home equity. Instead of making payments to the bank, the bank pays the borrower. So, for a senior in search of cash flow – it could be better than picking up a part-time job.
So, what are the drawbacks to reverse mortgages? First of all unlike a traditional mortgage, your debt grows instead of your equity. Thus, your heirs won’t inherit a free and clear house. If that is a concern a life insurance policy can be taken out equivalent to the size of the mortgage. The life insurance policy could be then used to pay-off the loan making the house unencumbered for your heirs. Another drawback to reverse mortgages is that they aren’t cheap. There are fairly substantial closing and service fees. Additionally, the loan accrues interest. There are mortgage calculators available to help with the analysis.
I am curious of others thoughts on reverse mortgages. Send me an email or leave a comment, but all in all it seems like it is better than asking “paper or plastic” in your retirement years.
For more info visit reversemortgage.org