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

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 could 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. Home Equity Investments

Home Equity Investments provide homeowners with an alternative way to tap into their home’s equity in exchange for a share of the home's future value.

A Hometap Investment is an equity investment that allows you to fund your retirement and stay in your home—without any monthly payments. Many of the reasons a reverse mortgage may not be a fit should also be considered in the case of a home equity investment, however. Keeping up with home costs like maintenance and property taxes are required for an investment to stay in good standing.

The investment can be settled at or before the end of the term with a home sale, refinance, or by buying the investment out with cash.

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