When is a Reverse Mortgage a Good Option? There are no fixed rules about when a homeowner should take out a reverse mortgage, but it is generally used by retirees who need cash to fund significant expenses that they cannot afford to pay by other means. This could include things such as home repairs, medical expenses, or needing to give financial assistance to children or grandchildren. Before applying, it is important to be aware of the risks: you can lose your home if you don't meet the loan requirements, and if you can't pay your taxes and insurance; or, if you stop using the home as a primary residence, you can lose your home to foreclosure. The Consumer Financial Protection Bureau recommends that you consider the following options before applying for a reverse mortgage: Wait. If you take out a reverse mortgage when you are in your 60s or 70s, you risk running out of money when you are older and subject to high health costs Other home equity options. A home equity loan or home equity line of credit can often be a cheaper way to borrow cash against your equity.
Ask your lender what could cause you to default. When you die, your estate has to repay the entire amount owing. If multiple individuals own the home, the loan has to be repaid when the last one dies or sells your home. The amount of time that you or your estate has to repay a reverse mortgage may vary. For example, if you die then your estate may have 180 days to pay back the mortgage. However, if you move into long-term care, then you might have one year to pay it back. Make sure you ask your lender for information about the timing for paying back a reverse mortgage. How much a reverse mortgage can cost Costs associated with a reverse mortgage may include: a higher interest rate than for a traditional mortgage a home appraisal fee a setup fee a prepayment penalty if you pay off your reverse mortgage before it is due legal fees for closing costs or independent legal advice The costs will vary depending on your lender. Some fees may be added to the balance of your loan. You may have to pay for others up front.