Why a reverse mortgage might be a good idea

A reverse mortgage is a type of loan that allows homeowners aged 62 and older to convert a portion of their home equity into cash without having to sell their home or make monthly mortgage payments. While reverse mortgages are not right for everyone, there are several reasons why they might be a good idea for some homeowners.

1. Supplementing retirement income
One of the main reasons why a reverse mortgage might be a good idea is to supplement retirement income. For many retirees, Social Security benefits and retirement savings may not be enough to cover all of their expenses. A reverse mortgage can provide a steady stream of tax-free income that can help to cover the cost of living expenses and unexpected expenses, such as medical bills or home repairs.

2. Paying off debts
Another reason why a reverse mortgage might be a good idea is to pay off debts. Many retirees may have accumulated debts over the years, such as credit card debt or medical bills. By taking out a reverse mortgage, they can use the funds to pay off these debts, which can help to reduce financial stress and improve their overall financial situation.

3. Accessing home equity
For many retirees, their home is their largest asset. A reverse mortgage allows homeowners to access their home equity without having to sell their home or make monthly mortgage payments. This can be especially beneficial for homeowners who need to access their home equity to cover unexpected expenses or to fund their retirement.

4. Flexibility
A reverse mortgage offers a great deal of flexibility to homeowners. They can choose to receive their payments as a lump sum, as monthly payments, or as a line of credit. They can also choose to use the funds for any purpose, such as paying off debts, covering living expenses, or taking a vacation. This flexibility can be very attractive to retirees who want to maintain control over their finances.

5. Non-recourse loan
Finally, one of the unique benefits of a reverse mortgage is that it is a non-recourse loan. This means that the homeowner or their heirs will never owe more than the value of the home at the time the loan is repaid, even if the loan balance exceeds the value of the home. This can provide peace of mind to homeowners and their families, knowing that they will never be burdened with a large debt that exceeds the value of their home.
In conclusion, while a reverse mortgage is not right for everyone, it can be a good idea for homeowners who need to supplement their retirement income, pay off debts, access their home equity, or want greater flexibility and peace of mind. As with any financial decision, it's important to carefully consider the costs and benefits of a reverse mortgage and to seek advice from a trusted financial professional.

In addition to the positive possibilities, we wanted to touch base on some potential cons of a reverse mortgage. It can limit your ability to move in the future, because you will need to repay the reverse mortgage from the sale proceeds. In addition, if you are unable to afford or qualify for a refinanced mortgage when the term of the reverse mortgage is up, you may be forced to sell your home. A reverse mortgage also lowers the value of your estate because it reduces the equity you have built up in your home. This is a disadvantage if you were planning to leave your house as an inheritance for your family.

The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Mark Vivian and not necessarily those of Raymond James.

Raymond James and its advisors do not offer tax advice. You should discuss any tax matters with the appropriate professional.