7 Legit Reasons To Take Out a Reverse Mortgage

NEWS & TRENDING - MORTGAGE & LOANS NEWS
Discover why a reverse mortgage might be your ticket to financial freedom.
Updated May 8, 2024
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Thinking about how to leverage your home equity in retirement? Reverse mortgages are gaining traction as a way to unlock your home's wealth and stay put.

These loans provide you with monthly payments or a lump sum, boosting your retirement income and potentially helping you get out of debt.

While there are drawbacks to consider, a reverse mortgage might be a valuable tool for your financial future.

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What is a reverse mortgage?

chinnarach/Adobe man hand press on calculator to check expenses

In a typical mortgage, you borrow money from a bank to buy a house. You then pay the bank each month to repay the lump sum and live in the house.

A reverse mortgage flips this scenario: The bank makes monthly payments to you instead, and you still get to live in the house. A major difference is that you’re still paying the bank interest in a reverse mortgage, which eats into your principal.

To get out of a reverse mortgage, you must repay your loan from your own funds or sell your house. You can keep the remaining equity after you sell the home and pay off the reverse mortgage.

To qualify for a reverse mortgage, you must be 62 or older and have at least 50% equity in your home.

While a reverse mortgage isn’t for everyone, here are a few situations where this financial tool may make sense.

You’re house rich and cash poor

InputUX/Adobe stacked with unpaid bills

If you haven’t saved enough for retirement, your monthly cash flow may be hurting. You have a large chunk of equity in your home, so the monthly payments from a reverse mortgage can help you make ends meet.

You don’t plan to leave your house to heirs

twinsterphoto/Adobe senior couple at front of house

The end of a reverse mortgage often results in the heirs selling the home to pay off the reverse mortgage. If you’re not planning to leave the house to your heirs, using its equity to fund your golden years may not be a bad choice.

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You need cash flow during retirement

Goran/Adobe Worried senior couple feeling stressed

Unexpected medical or other expenses can happen at any time. Even minor financial strains can become disastrous if you’re on a fixed income. 

When you need a little extra financial boost, and there aren’t other places to turn, a reverse mortgage can help you tap your home equity to help.

You don’t qualify for a HELOC

Vitalii Vodolazskyi/Adobe home equity line of credit HELOC documents

If you need home repairs or renovations to remain in your home, a HELOC might be a logical way to pay for them. However, some HELOCs require an income, which most people don’t have during retirement. 

A reverse mortgage can accomplish the same goal even if you don’t have regular income from a job.

You have outstanding debts

bramgino/Adobe exhausted woman reviewing debts

A reverse mortgage can help you consolidate high-interest debts. Current reverse mortgage interest rates are between 8% and 9.5%, which is much lower than the rate on many credit cards.

You want to delay taking Social Security payments

Jon Anders Wiken/Adobe social security cards stimulus check and dollar bills

Delaying the start of Social Security payments until you are 70 will maximize your monthly payment. If you need cash flow until then, a reverse mortgage could provide enough to satisfy your budget or supplement your Social Security.

You want to increase your quality of life

Lumos sp/Adobe happy retired couple smiling outdoors

Extra funds from a reverse mortgage could help you travel the world or visit the grandkids during retirement. 

However you want to spend your energy and time, your home’s equity could supply the means without dipping into your regular retirement funds or taking a job to make extra money.

Bottom line

Monkey Business/Adobe couple looking at house

A reverse mortgage can be a valuable tool if you're looking to access your home equity to boost your retirement income and remain in your home.

However, it's vital to carefully consider the potential drawbacks, such as the impact on heirs and the fees involved.

Consult with a financial advisor first to ensure a reverse mortgage aligns with your long-term financial goals and estate planning wishes.

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Author Details

Jenni Sisson Jenni Sisson is a freelance writer and editor who focuses on personal finance, real estate, and entrepreneurship. She has been published in Business Insider and The Ways to Wealth. In addition to writing, Jenni hosts the Mama's Money Map podcast to help fellow stay-at-home moms on their journey to financial freedom.

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