Reverse Mortgages

I’m not that familiar with the intricacies of reverse mortgages but one of my clients recently asked if it was a good idea for him to do one so I did some research. Here’s what I’ve learned about them so far:

When you have a traditional mortgage, you take out a loan and pay the lender payments so that after a period of time (30 years, usually) you own 100% of the home. With a reverse mortgage, you start off with a house that you own 100% and then borrow against it and the lender pays you. Now why would that be a bad thing? Because you’ve traded having no debt on your home for increasing debt on your home and when you pass away or decide to sell your home, you have to repay the loan and could end up with nothing (i.e. no home) depending on how much you owe and how much your home is worth at that time. Not to mention there are a bunch of fees involved and you’re still responsible for all the carrying costs – property taxes, HOA dues, insurance, etc.

You have to be over 62 to even qualify for a reverse mortgage so this obviously doesn’t apply to us millennials right now. However, this could apply to our parents. Most of our parents are over the age of 62 (or will be within the next decade) and they’ll likely have a paid off house. If they’re in retirement and running out of money, someone might tell them to do a reverse mortgage. And now that you know that it’s not a good idea, you can advise against it and try to convince them to consider other options instead like downsizing or selling their home and renting.

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