If you are of age 62 or older and your home has at least 50% equity or more, you may be a candidate for a reverse mortgage, or a Home Equity Conversion Mortgage. A few other stipulations do apply. For example, you have to demonstrate that financial ability to pay property taxes and upkeep and to maintain a homeowner's insurance policy while also attending a mandated third-party credit counseling session.
For many older Americans, their home equity represents a large part of their wealth, a number experts say currently exceeds $5 trillion in the U.S. Knowing that you have the ability to use this money, if need be, is a comforting notion for many, considering that a large portion of older Americans do not have enough money saved up to secure their quality of life during retirement.
Along the way, make sure you consider a few of the following elements.
Do you plan on keeping the home as your primary residence? Current reverse mortgage laws mandate that you own and occupy the home that you take out these loans on. This means that if you plan on moving to a new primary residence, you'd have to sell the home and pay off the balance along the way.
Are you planning in deferring your Social Security benefits? Doing so can result in you getting a higher payout by waiting to collect them. But you want to make sure you compare this against the interest rate you'd be paying for the reverse mortgage first, just to assure that such a move is in your best financial interest.
Could a reverse mortgage improve the quality of your life? It very well may. You can use the funds as you see fit. This can include paying for medical costs, vacations, a remodel, setting the money aside for savings or just using it to help supplement your everyday expenses.
Does a reverse mortgage make sense for your situation? The only person who can answer this question is you. A great place to start is with talking to your financial advisor so you can learn more about how this type of home loan works. Conduct some research so you can compare the pros and cons. You may find that it's a convenient way to access your home equity now and use the money to benefit your current situation.