When is a Reverse Mortgage a Poor Retirement Planning Decision?
One of the retirement planning products that is gaining in popularity right now is the reverse mortgage. This product basically works in this way: You take out a second home mortgage loan that works the reverse of a regular loan in that the bank pays you. Your reverse mortgage does not need to be paid back until the home is sold, or until you move out.
While it can be helpful for many in terms of providing some needed cash flow, a reverse mortgage is also expensive (lots of high fees) — and it’s not for everyone.
Who should avoid the reverse mortgage when making retirement planning decisions?
There are some great points raised over at Saving to Invest regarding who should not get a reverse mortgage. Here are some guidelines that may help you decide that the reverse mortgage may not be the best retirement planning option for you:
- Younger spouse. The reverse mortgage cannot be taken out if one of the people on the title to the home is younger than 62. Taking the younger spouse off the title would mean that he or she would be displaced if there was not funding in place to pay off the mortgage loan.
- Poor health. With a reverse mortgage, it is important to realize that at least one of the borrowers must use the home as a residence. If the original borrowers are not in the home for 12 months, then the mortgage loan becomes due. If your health does not allow you to live at home, a reverse mortgage is not the best choice.
- Income too low. If you have a reverse mortgage, you still have to pay homeowners insurance, taxes on the property as well as maintenance and upkeep. If, even with the reverse mortgage, you are unable to do this, you may need to resort to other options.
Taking out a reverse mortgage is a big step, and a big financial decision. Make sure that you carefully consider all of your options before doing so.
Tags: reverse mortgage, mortgage loan, home mortgage loan, mortgage loan blog,
second mortgage, retirement planning, reverse mortgage retirement
