Are Reverse Mortgages Really Worth It?

Reverse mortgages can be a useful financial tool for older homeowners, but only if they understand the way these loans work and the obligations they must meet while they’re living on the property. Lenders tailor reverse mortgage loans to people aged 62 or over, who own their homes and don’t plan on selling in the near future. A reverse mortgage doesn’t suit every borrower, so it’s important to fully understand the terms and conditions before taking out a reverse mortgage.

Reverse Mortgages Are Taken Against The Equity In The Property

Reverse mortgages allow homeowners to unlock the equity they have in their property. The borrower does not need to make payments against the loan as long as they live in the house and continue paying property taxes and taking care of the property. The loan is only repaid when the house is sold. This means a reverse mortgage might make sense for a senior who plans on staying in the property for several years. However, those who are considering downsizing or moving into an assisted living facility in the near future may find that the loan arrangement fees, closing costs and other expenses make taking out a reverse mortgage an expensive form of borrowing.

The Age of Your Spouse Matters

Seniors who have a younger spouse should think carefully about using a reverse mortgage. While there are protections in place to ensure a younger spouse doesn’t lose their home if the older spouse dies first, the younger non-borrower cannot access money from the loan if the borrower dies. Luckily, recently enacted laws give non-borrowing spouses some legal protections. Since 2014, the Department of Urban and Human Development (HUD) has been fortifying with upgraded rules to protect non-borrowing spouses.  

Lodgers Are Not Protected

While the spouse of the borrower has some legal protections allowing them to remain in the house after the borrower dies, those protections don’t apply to other residents. A senior who has lodgers or who has family members living with them should be aware that if they die those lodgers will have to leave the property or purchase it.

In addition, if the senior moves into a nursing home or assisted living facility for more than 12 consecutive months, many reverse mortgage lenders will treat this as them vacating the property and expect it to be sold.