Reverse Mortgages Explained - the Good and the Bad

Retirement has many options such as annuities, IRA income, social security, etc. Reverse mortgage is one of them. A reverse mortgage is a loan that you can take against the equity that you have in your house and the loan can be taken out in a lump sum or in monthly payments. You do not have to repay the loan until you die or move. You must be 62 to qualify for this retirement program.

The Good:

• Money is quickly available in a lump sum to use to pay off debt in retirement
• Monthly payments that could support your social security and retirement distributions
• You can stay in your house
• Credit history is irrelevant to obtain this loan as your home is the collateral
• You can use the loan to pay off the remaining balance of the mortgage and never pay your mortgage again

The Bad:
 

• Fees to obtain a reverse mortgage can be high
• You are still liable for the insurance and taxes
• If you move (i.e. nursing home), you must start paying back the loan
• Once you die, the estate repays the loan and the fees if they want to inherit the house
• If you receive some payments and pass away, and your estate does not have the money to repay the payments and the accumulated interest, than your estate will loose the house

It is a great program for those who do not need/want to leave anything to their heirs and for those struggling in retirement. However, do keep in mind that you must live in the house to not have to pay back the loan. As soon as you sell the house or move, you must start repaying the loan back to the bank.