When does it make financial sense to get a reverse mortgage?

2 answers | Last updated: Sep 28, 2016
A fellow caregiver asked...

When does it make financial sense to get a reverse mortgage?

Expert Answers

Barbara Steinberg is the CEO and founder of BLS Eldercare Financial Solutions, which specializes in helping families pay for long-term care for their loved ones. A registered financial gerontologist, she speaks regularly on the topic of paying for long-term care and is a financial expert for Caring.com.

A reverse mortgage can be a big help to seniors who need to tap resources for unforeseen expenses. These include medical and long term care expenses, major household repairs or to supplement low income. For many seniors on fixed incomes, their house is their largest or only asset. It makes sense to use this resource as a last resort. It also makes sense to pay off other high interest or income draining loans or mortgages. Since you never have to make a payment as long as you live in the house (and keep up with property taxes and insurance), you can use a reverse mortgage to eliminate burdensome payments. But when you consider a reverse mortgage, you should consider what the costs are. First, there are closing costs. These do not come out of pocket. They are rolled into the reverse mortgage. So you start off with an outstanding balance that is accumulating interest. The good news is that closing costs have come down dramatically in the last few years. You should consider how long you expect to live in the house. You don't want to accrue the closing costs and sell in a short period of time. You want to amortize the closing costs over the life of the loan. Second, you are not making any payments so the interest is accumulating on any money you take out from the reverse mortgage. So your outstanding balance is growing from principal and interest. If you plan to leave the house to your heirs, they will have to pay off the reverse mortgage in order to keep the house. This may not be feasible. However, I believe that the quality of life and care for the senior is more important than an inheritance. When there is a good reason to take out a reverse mortgage, it is a valuable resource.

Community Answers

Rainmand answered...

It makes financial sense if it results in increasing your quality of life. There are other times it makes sense too, with the assistance of a Financial Adviser. I recommend reviewing your Estate with a Financial Adviser, to determine if a Reverse Mortgage provides a reasonable solution for your situation.