Is a Reverse Mortgage Right for You?

As a senior, you may be living on a limited income, which can make things challenging if you suffer health problems or if your home needs major repairs. Perhaps you simply want to enjoy your retirement, but you don't have the funds to travel or to do the other things that you would like. 

A reverse mortgage might offer the solution you need. A reverse mortgage occurs when the bank buys back your home, giving you a monthly payment based on the estimated value of your home. You don't pay back the money until you sell the house (or until you die). Though there are many benefits to a reverse mortgage, there are also many drawbacks. Here are a few things to think about to help you determine if a reverse mortgage is right for you: 

Your Age

You must be at least 62 to qualify for a reverse mortgage. However, the older you are, the more beneficial a reverse mortgage might be for you. Your home is likely to have more equity in it, which means that you will receive more money. In addition, the bank bases its monthly payment based on how long it expects you to live. The older you are, the fewer years the bank thinks it will have to pay, meaning that it will make bigger monthly payments to you. 

The Equity in Your Home

How much equity you have in your home may be one of the biggest factors determining if a reverse mortgage is right for you. The more equity you have, the more you are likely to get from a reverse mortgage. The equity also has to be enough to overcome the fees and interest you will pay back when you are ready to sell your home. If you don't expect your house to maintain its value or to continue to appreciate, a reverse mortgage may not be the best idea. 

Future Plans for Your Home

If you are planning to move very soon, a reverse mortgage may not be the best idea. The fees and interest will make it difficult to recoup the amount you owe, especially if you took a lump sum instead of a monthly payment. However, if you are planning to stay in your home for awhile, then a reverse mortgage might help you.

Also, if you are planning to leave behind your home to your children, you will need to think carefully about a reverse mortgage. Your family will become responsible for paying off your reverse mortgage when you die, whether they want to stay in the home or not. If they stay, it would be like buying the home all over again. Even if you just want to leave a financial legacy for your family, a reverse mortgage often eats up the equity left in the home, leaving nothing behind.

Depending on your circumstances, a reverse mortgage can be a great idea or it can ruin the financial investment you have made in your home. Consider your age, how much equity you have in your home, and what your future plans are for your home to determine if a reverse mortgage is the right choice for you.

Did you get a reverse mortgage on your home? Tell us how you decided it was the right decision for you.

About the Author:

Alexis Bonari writes for one of the largest open databases of college funding opportunities. Specific topics like free college grants are described in detail to provide multiple resources for students.