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Reverse Mortgages in Retirement: When to Sign On and When to Steer Clear

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picture of author, Hometap TeamBy Hometap Team on January 8, 2019

With rising taxes, Medicare costs, and interest rates, retirement doesn’t come cheap. More than 1 million reverse mortgages, or Home Equity Conversion Mortgages, have been sold since 1990. But before you decide to fund your retirement via a reverse mortgage, it’s worth weighing the benefits against the risks for your situation, plus exploring alternative ways to fund your retirement dreams.

When to Apply for a Reverse Mortgage

1. You Want to Grow Your Retirement Savings

Since reverse mortgages offer fast cash, you can add that money to your retirement savings. The extra cash allows you to diversify your portfolio and grow your future funds.

2. You Can Cover Closing Fees

As with traditional mortgages, reverse mortgages have their own closing costs. According to American Advisor Group, fees include:

  • Credit Report: $20–$50
  • Flood Certification: $20–$30
  • Escrow Fee: $150–$800
  • Document Prep: $75–$150
  • Recording: $50–$500
  • Courier: $50
  • Title Insurance: Varies by loan amount and region
  • Pest Inspection: $100
  • Survey: $100–$250

You’ll also pay an initial mortgage insurance premium fee equal to 2% of your home’s value, plus a loan origination fee charged by your lender starting at 2% of the loan with a maximum of $6,000. It’s possible to roll many of these costs into the reverse mortgage itself, but a home appraisal—$400–$600—must be paid upfront.

When to Steer Clear of a Reverse Mortgage

1. You May Need to Leave Your Home

Reverse mortgages are not forgiving if unexpected health issues arise. That means if you need to move into a nursing home or assisted living facility, the loan will need to be paid upfront. (A leave of absence longer than 12 consecutive months is considered a permanent move by law.)

It’s difficult to plan for future illness. Take the time now to ask yourself the tough questions about if or when you’d need to leave your home.

Read Can You Get Out of a Reverse Mortgage?

2. You Can’t Keep Up with Home Payments

Reverse mortgages have no monthly payments, but they do require homeowners keep up with other related costs. These range from home maintenance, property tax, and insurance. Unfortunately, more and more seniors are facing foreclosure from reverse mortgages because they fell behind or failed to meet other requirements.

Alternative Retirement Funding Options

1. Personal Loans

Personal loans are beneficial for paying down debt in a number of ways. Not only will your credit score rise from lowering your debt but you can apply for a lower-rate reverse mortgage later if it’s a fit to fund your retirement.

2. Equity Investments

Home Equity Investing is exactly what it sounds like. Homeowners tap into their home’s equity in exchange for a share of the property’s future appreciation or depreciation.

A Hometap Investment is an equity investment that allows you to fund your retirement and stay in your home—without any monthly payments or interest. And unlike other options, you don’t need to sell your home when your term ends; you can refinance or buy out the Investment with savings instead.

Tap into your equity with no monthly payments. See if you prequalify for a Hometap investment in less than 30 seconds.

You should know

We do our best to make sure that the information in this post is as accurate as possible as of the date it is published, but things change quickly sometimes. Hometap does not endorse or monitor any linked websites. Individual situations differ, so consult your own finance, tax or legal professional to determine what makes sense for you.

Hometap is made up of a collaborative team of underwriters, investment managers, financial analysts, and—most importantly—homeowners—in the home financing field that understand the challenges that come with owning a home.

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