In his article, John F. Wasik discusses the concept of reverse mortgages that are steadily returning to the popularity they once had. Reverse mortgages are an alternate and unique source of cash for individuals but may be difficult to use properly. Wasik explains,
Although a source of ready cash, reverse mortgages aren’t right for everyone. If you want to provide a bequest to your heirs by allowing them to sell your home upon your death, a reverse mortgage can wipe out much of the equity in your home.
“Reverse mortgages are off the table if you want to leave your home to your kids,” Mr. Hopkins said.
These loans are also challenging for those who have to move because of a disability, are selling a home after a short period or are relocating.
When considering a reverse mortgage, take your time and do the math. How long do you plan to stay in the home? How much will you qualify for based on your age and home value? How will the cash be used? Will you need the cash right away? Would you prefer a line of credit that you can use at a later date?
In addition to understanding how reverse mortgages would fit into your financial plan, you will need to shop around. Like other mortgages, they have closing costs, which range from $4,000 to $15,000, though those amounts typically are not paid upfront because they can be added to the loan’s principal. Rates can be either variable or fixed.
Posted by Allison Trupp, Associate Editor, Wealth Strategies Journal