A reverse mortgage is a financial option that allows homeowners 62+ years old to get spendable cash out of their home equity without selling the home or making payments. For some homeowners, it is a great option to be able to remain in their home as long as they live without making any payments and still enjoy access to cash from their home equity without having to sell the home.
Along with no mortgage payments, qualified homeowners can receive a tax free lump sum payment, an automated monthly deposit, or a line of credit to draw on when needed.
Age eligibility is straightforward; one of the homeowners has to 62 or older. When the homeowners pass on, the home is sold and whatever property equity is left goes to the heirs.
A reverse mortgage can sound very appealing but it comes at a significant cost. Yes, you no longer have to make mortgage payments, but the homeowner still has to pay property tax and insurance. There is also a considerable processing cost for mortgage insurance and an origination fee.
The bottom line… make sure your family learns the pros and cons of a reverse mortgage before taking the leap. It’s a good idea to discuss the issue with your heirs and make sure everyone is comfortable with it. If you want access to cash while living, your heirs may want to provide it and avoid the reverse mortgage costs. If not, the reverse mortgage can be a great option to access cash now without selling, getting a second mortgage, or having to make payments.