Is a Reverse Mortgage a Good Idea for Me?

It’s usually a good idea to discuss important financial decisions with friends, family, or someone you trust. Here are some questions to consider before applying for a reverse mortgage:

1. Is there another, cheaper way for you to achieve your financial goal?

Before tapping into your home equity, see if you can find a way to lower your expenses. See if you qualify for a state or local program to lower your bills or consider downsizing to a more affordable home.

2. Do you need to tap into your home equity now or should you save it for an emergency?

Home equity is often the last resource to turn to in a financial emergency. It’s usually best to preserve your equity if you have other resources available. However, if you think you may need to access your equity, speak with a housing counselor and a trusted financial advisor now, rather than later. A financial plan will help you avoid last minute financial decisions in an emergency.

3. Are you on a fixed income with no other assets?

If you don’t have much income, a reverse mortgage might not be the best option for you. If you take out a reverse mortgage loan and then have trouble paying your property taxes and homeowner’s insurance, you could face foreclosure. Consider downsizing. If you use money from the sale of your current home to buy a more affordable one, you could be more financially secure in the long run.

4. Do you have children or other heirs to whom you plan to leave your home?

A reverse mortgage may jeopardize your ability to leave your home to your heirs.

5. How long do you and your family plan to live in the home?

In most cases, a reverse mortgage makes more sense if you plan to live in your current home for a long time. Reverse mortgages can be an expensive way to borrow money if you don’t plan to stay in your home for many years. Here’s why: Most reverse mortgages require you to pay insurance premiums in case your loan balance grows to be more than your home is worth. With insurance, you won’t have to pay the difference. But if you only stay in your home for a short period of time, chances are you’re paying for insurance you don’t need since the loan balance is less likely to grow to more than your home value.

Reverse mortgages can also have high upfront costs. If you sell your house within a few years, you won’t have gotten as much benefit from those costs than if you stayed in your home for a longer time.

6. How much will it cost you in fees to obtain a reverse mortgage?

Fees vary depending on the type of reverse mortgage that you choose, and in some cases can be high. Shop around for the best deal.

7. How will you pay for property taxes and homeowner’s insurance?

You’ll need a plan for how you will pay for property taxes and homeowner’s insurance. If you fall behind on either one, the lender could foreclose on your reverse mortgage and you could be forced to move.

8. Does your spouse or partner want to keep living in the house if you die?

Discuss this question carefully with your partner. If you take out a reverse mortgage without your partner as a co-borrower, then your partner will have to move out or repay the loan if you die. If your partner is a co-borrower, both you and your partner will be able to keep living in the house after one of you dies.

To talk to a housing counselor who’s been approved by the Department of Housing and Urban Development (HUD) visit HUD’s counselor search page or call HUD’s housing counselor referral line (800) 569-4287. HUD-approved counselors may charge a fee, typically $125 or less.

Be careful about taking out a reverse mortgage as part of an investment strategy. There is no such thing as a risk-free or guaranteed investment and you could risk losing your home.
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