Should You Get A Reverse Mortgage?

Homeowners age 62 and older may be eligible for a reverse mortgage based on the equity of their home.
Homeowners age 62 and older may be eligible for a reverse mortgage based on the equity of their home. | Source

Reverse Mortgage Loans -- What Are They?

You've likely seen Robert Wagner, Henry Winkler or Fred Thompson in television commercials extolling the virtues of reverse mortgage loans. Although reverse mortgages originated in the United States in the early 1960s, their popularity -- and notoriety -- is a 21st century occurrence. Even so, there are many people who are unsure just what a reverse mortgage is.

Unlike a traditional loan where a lender lets you borrow a certain sum of money that you repay monthly with interest, a reverse mortgage loan pays you money based on the equity you have in your home that generally does not have to be repaid as long as you are living in your home, sell the home, the home is no longer your primary residence or at your death.

Some types of reverse mortgage loans have no income restrictions for eligibility and most proceeds from the reverse mortgage are not subject to taxation.

You'll want to note the use of the words "generally," "some" and "most" in the text above to understand that any reverse mortgage for which you apply would have to be checked to ascertain if these conditions are met in that loan. You may want to have a lawyer or accountant review the reverse mortgage application with you to answer any questions or concerns you may have.

One of the considerations in getting a reverse mortgage is whether or not you plan to remain living there for as long as you are able to do so.
One of the considerations in getting a reverse mortgage is whether or not you plan to remain living there for as long as you are able to do so. | Source

Suze Orman: What Is a Reverse Mortgage Loan?

Why Get a Reverse Mortgage?

Why would anyone consider getting a reverse mortgage loan in the first place? The answers are as varied as individual circumstances dictate. In general, older adults consider reverse mortgages to:

  • Free up money from a monthly mortgage (a reverse mortgage pays off the remainder of an existing mortgage)
  • Obtain money for needed repairs or home improvements such as making a home handicap accessible, a new roof, or addition to the home for a family member live-in
  • To obtain additional income each month to help pay bills, health care costs, or life enjoyment
  • Lump sum reverse mortgage loans, where the borrower receives a large front-end payment of the home's equity may be used to pay off existing debts, placed in investments or savings accounts, or to take the dream vacation of a lifetime

Learn the Risks of Reverse Mortgages

Ways to Repay Reverse Mortgage Lender

Life is unpredictable. There may be circumstances where the reverse mortgage holder or his/her heirs may want to repay the reverse mortgage loan. These are some options:

  • Refinance the reverse mortgage with a traditional mortgage loan
  • Include the reverse mortgage in a Chapter 13 bankruptcy, it can then be paid off over five years
  • Refinance the reverse mortgage with another reverse mortgage

Individual circumstances will determine which, if any, of these options make sense in your particular situation.

Potential Pitfalls of Reverse Mortgages

Before you seriously consider obtaining a reverse mortgage, there are some issues you may want to think about:

  • How important is it to you and your spouse that you're able to live in your home for the rest of your lives?
  • Will the equity you have in your home provide the type of income you need to be able to stay in your home and pay all costs associated with home ownership?
  • If you are still making mortgage payments, will having those payments "disappear" make a significant impact in your monthly budget and/or quality of life?
  • Is it important to you to be able to leave your home to a family member or members?
  • Is obtaining a reverse mortgage loan something you have to do, or want to do?

There are no right or wrong answers to these issues, but they may help you make a more informed decision about choosing to seek a reverse mortgage.

Reverse Mortgage Counseling Is Required

Reverse mortgage counseling is required for anyone who is seeking a federally-insured reverse mortgage -- a Home Equity Conversion Mortgage, HECM -- and also by some privately-owned reverse mortgage lenders. The counseling must be obtained through an independent government-approved reverse mortgage counseling agency.

The purpose of the counseling prior to obtaining a reverse mortgage loan is so the potential borrowers have an opportunity to learn about the reverse loan mortgage process, associated costs, and have terms explained and questions answered by someone well-versed in reverse mortgage knowledge but has nothing to gain or lose by your decision to take out or not take out a reverse mortgage.

The usual fee is $125. The payment for the counseling can be taken from the reverse mortgage loan, if you choose to get one, or you can pay for the counseling yourself. If you are unable to pay, you cannot be turned down for this counseling.

To find approved reverse mortgage counselors in your area, visit the Housing and Urban Development site here.

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Comments 8 comments

MsDora profile image

MsDora 3 years ago from The Caribbean

Thank you very much for the clear explanation on reverse mortgages, and also for the links to additional information. Many folks 62 and older may need several explanations before they are convinced to try it. Voted Up and Useful.


L.L. Woodard profile image

L.L. Woodard 3 years ago from Oklahoma City Author

MsDora, I'm happy you found the information useful. I have a family member who entered into a reverse mortgage a few years ago and is happy to have done so, but I've also read accounts where others have had second thoughts.

I appreciate your read, comments and vote.


rajan jolly profile image

rajan jolly 3 years ago from From Mumbai, presently in Jalandhar,INDIA.

L.L., I always used to wonder how reverse mortgage worked and its implications. Glad to have read this hub. It made many things clearer.

Voted up, useful and shared.


elderadvisor 3 years ago from Connecticut

Thank you for this informative Hub. Reverse mortgages can help, but as you clearly pointed out there is more to it than just getting a monthly check. This is industry is going to be prone to praying on a growing elderly population. Voted up.


TIMETRAVELER2 profile image

TIMETRAVELER2 3 years ago

This is extremely good information and is well presented. My one concern about these types of mortgages is how having one would impact someone who may need to go on Medicaid in later years. I would strongly advise anybody seeking a reverse mortgage to discuss it first with an elder care attorney for this reason. Voted up.


L.L. Woodard profile image

L.L. Woodard 3 years ago from Oklahoma City Author

@Rajan Jolly: Thanks for reading, voting and sharing. Reverse mortgages can be a little tricky to understand initially. According to sources I've read recently, the more popular type of reverse mortgage that provides a large lump sum payment at the beginning of the loan may soon be going away. We'll have to see how that plays out.

@ElderAdvisor: Yes, I can envision the reverse mortgage providers wringing their hands in glee as more and more baby boomers reach the age threshold requirement for obtaining a reverse mortgage. Thank you for the read, comment and vote.

@TimeTraveler2: I appreciate your kind comments and agree that discussing the options of a reverse mortgage with an elder care attorney is a good idea. Talking with adult children and grandchildren may be a good way to go also; if there is an underlying financial crisis or dilemma as the reason for wanting a reverse mortgage, such family members may be able to provide alternate solutions. Thanks for your vote.


wabash annie profile image

wabash annie 3 years ago from Colorado Front Range

This hub provided excellent information about the pros and cons of reverse. The readers' comments also included some very good suggestions. Thanks for writing on this topic.


L.L. Woodard profile image

L.L. Woodard 3 years ago from Oklahoma City Author

Hi Wabash Annie, thank you for your read and comments.

The message sent by those television commercials that a reverse mortgage is the answer for any senior's financial needs has to be very tempting for those who find themselves in economic straits, but there is much to be considered before taking this step.

I'm thankful to all those who have commented and added important details about reverse mortgages.

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