Reverse Mortgage: Advantages & Disadvantages

If you’re at least 62, you can probably qualify for a reverse mortgage. For those unfamiliar with the term, a reverse mortgage isn’t free money. It’s a loan. It has to be paid back, but not until you pass away or sell your home.

Some advantages:

  • No credit check most of the time
  • No restrictions on how you spend the money
  • No monthly payments
  • No tax liability
  • You can take the whole amount at one payout or in regular installments.
  • You can fix a cash-flow crunch, pay bills, or just afford extras that you can’t afford now.
  • It might allow you to stay in your home as you age, allowing you a budget for home care, medications, and so forth.
  • No one can force you to sell your home.
  • You can never owe more than what your home is worth when the loan is repaid.
  • Reverse mortgages can be refinanced.

The down sides:

  • High cost of borrowing – the upfront fees can be pretty steep.
  • If you become ill and have to move, the loan will have to be repaid at that time.
  • If your heirs are counting on your money for their retirement, they might have to find another way to finance themselves.
  • Selling your home may be a better choice for you.
  • If you opt for this program before you’re about age 70, you’ll get less money out.

Some financial experts like Terry Savage of the Chicago Sun-Times maintain there are no down sides to reverse mortgages. She helped her own father (age 84) get one.

Others take a more conservative perspective, like Julie Tripp, who writes for the Oregonian.

As in all matters of finance, consult the people you trust. Your banker. Your attorney. Your accountant. Make your decision on fact; never base it on panic or fear.