Three questions to ask about reverse mortgages

OKLAHOMA CITY – One retirement planning resource that has gained interest in recent years is the reverse mortgage, which allows you to convert part of a home’s equity into cash without paying additional monthly bills. If you’re 62 or older and want money to pay off your mortgage or to help pay for other expenses, you might consider a reverse mortgage. The Oklahoma Society of CPAs offers three questions to answer in order to decide if a reverse mortgage is right for you.
1. What is a reverse mortgage? A reverse mortgage is a type of home loan that allows you to convert a portion of your home’s equity into cash. Reverse mortgages take part of the home’s equity and converts it into payments — a type of advanced payment on home equity where money received is usually tax-free. Generally, the money doesn’t have to be repaid, as long as you live in the home. However, you or your estate must repay the loan when you move to a new home or pass away.
2. What kind of reverse mortgage can I get?
•Single-purpose reverse mortgages: This is the least expensive option and most homeowners with low or moderate income can qualify. The loan can only be used for one purpose, which is specified by the lender (i.e., home repairs). Single-purpose reverse mortgages are offered by some state and local government agencies, as well as non-profit organizations, but they’re not available everywhere. Check with your financial advisor to see what options are available in your state.
•Proprietary reverse mortgages: Also known as private company reverse mortgages, proprietary reverse mortgages are backed by companies that develop them, not federally insured and typically designed for borrowers with higher home values. If you own a higher-valued home, you may receive a higher loan advance and qualify for more funds with this type of loan.
•Home Equity Conversion Mortgages (HECMs): These are federally-insured and can be used for any purpose — from supplementing retirement income to covering daily living expenses, to preventing foreclosure on your home. These loans tend to be the most popular and are backed by the U. S. Department of Housing and Urban Development (HUD).
3. Is a reverse mortgage right for me? There are pros and cons of a reverse mortgage, and only you can determine the right decision. Because there isn’t a specific income requirement on reverse mortgages, you are likely to pay higher fees and interest rates with these loans. Reverse mortgages can make leaving a home to an heir difficult because the loan must be repaid once you die. This usually means selling the home or using inheritance to pay off the loan. In many cases, a reverse mortgage isn’t worthwhile because of the drawbacks, but there are exceptions.
However, you might want to explore a reverse mortgage if you need cash for retirement expenses. These loans can help ease financial strains, especially if a large portion of money is locked into a home.

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