Remember that there are other alternatives to boost income if needed later in retirement than a reverse mortgage. An intra-family transfer to a child or just obtaining a HELOC (home equity line of credit) may be good possibilities.
PROS:
(1) Provides financial independence
(2) Can stay in the home you love
(3) No loan payments required - you get money instead
(4) Reverse mortgage does not have to be repaid until last surviving borrower dies or home is sold or borrower moves out permanently (but, of-course, then the monthly income stops)
(5) Non-recourse (big, fancy term but what it means is that you can never owe more than the home is worth so you never have to worry about other assets being at risk)
(6) Many options of payments (lump-sum or monthly payments or a credit line that you use as you need to)
Now for the CONS:
(1) Can't do it unless your home is free and clear (otherwise proceeds must go first to paying off the current mortgages leaving less for you, but it could save you that mortgage payment)
(2) It is costly to obtain (total closing costs can be 6-10%), therefore, the less time you do end up living in the house due to health issues or death, the more costly the loan to you (you need time to spread those costs)
(3) If you live in an expensive area (like the DC area) you most certainly won't be able to get all of your equity
(4) All borrowers must be at least 62 years old
(5) The interest rate is continually added to the amount borrowed so it is possible that no equity will be left for heirs to inherit.
(6) Private loans may allow you to borrow more but are more costly and may, again, deplete your remaining equity quicker leaving no legacy values to inherit
(7) Heirs may be able to help with income needs at a lower cost and maintain the inheritance and at a much lower cost
Again, because interest is added to the outstanding balance borrowed it is very possible that further home appreciation (or in a market like we have been with depreciating values) will not keep up and you may not have much, if any, home equity to leave to anyone or to use to pay for long-term care (or other bills) if you need to vacate the home.
An Introduction
Hi. Welcome to BourGroup and my blog. Phil
Phil Bour is a CERTIFIED FINANCIAL PLANNER(tm) professional since 2004, a Magna Cum Laude college graduate and an accounting professional for over 35+ years. I love numbers, statistics and economic history.
I am also an Enrolled Agent (EA) to represent taxpayers before the Internal Revenue Service and to prepare tax returns.
"Phil"osophy: I believe that you can manage your money on your own (not necessarily through individual stock selection but through mutual funds, ETF's and other solutions) once you receive some one-time, professional guidance. Why pay annual fees when there may be little added value? For additional information, first read the "An Introduction" label at the left. Then move on to others.
Phil Bour is a CERTIFIED FINANCIAL PLANNER(tm) professional since 2004, a Magna Cum Laude college graduate and an accounting professional for over 35+ years. I love numbers, statistics and economic history.
I am also an Enrolled Agent (EA) to represent taxpayers before the Internal Revenue Service and to prepare tax returns.
"Phil"osophy: I believe that you can manage your money on your own (not necessarily through individual stock selection but through mutual funds, ETF's and other solutions) once you receive some one-time, professional guidance. Why pay annual fees when there may be little added value? For additional information, first read the "An Introduction" label at the left. Then move on to others.