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Is a reverse mortgage the right tool for you?

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If you are over 62, you know you are eligible for a reverse mortgage because you can’t turn around without someone telling you that you are. There’s nothing wrong with reverse mortgages as long as you realize they are a tool. Just as a screwdriver isn’t the tool you need when you need to hammer a nail, sometimes a reverse mortgage isn’t the tool you need in a particular circumstances and it’s important to learn upfront that it isn’t. How do you know a reverse mortgage is the right tool for you? AARP recently ran an article listing five questions to ask before applying for a reverse mortgage. Even if a reverse mortgage is the right tool, one thing many consumers don’t understand is that there are three types of reverse mortgages and they may not all suit your needs. It helps to understand something about the types offered. They are:

Single-purpose reverse mortgages. This loan costs the least. Generally offered by government agencies or non-profits, they provide a means for low or moderate-income borrowers to finance home repairs or other single purpose projects, which the lender specifies. The downside besides their narrow use is that they aren’t offered everywhere. Their upside is that most homeowners can qualify for these types of loans.

Proprietary reverse mortgages. These private loans are backed by the companies that develop them and may provide a means to get a bigger loan advance if you own a higher value home and/or have a small mortgage.

Home Equity Conversion Mortgages (HECMs). These federally-insured reverse mortgages are backed by the U.S. Department of Housing and Urban Development (HUD) and can be used for any purpose. These loans tend to be more expensive than traditional home loans and their upfront costs can be high. HECMs require meeting with a counselor to learn the costs and implications of a loan and possible alternatives.

Before you can decide which loan type is the right one for you, you should think about what you need the loan for and you should have an understanding about what it will cost you. If you do decide to get a reverse mortgage and then decide you don’t want it, most reverse mortgages give you three days to cancel the deal. Don’t jump into any decision. Reverse mortgages can be complicated and  expensive. Still, if a reverse mortgage is right for you, it can help you pay off your mortgage, supplement your income or pay for healthcare expenses.

If you’ve listened to the AgingOptions radio show on Saturdays, you know that reverse mortgages can also help you move into a home that is age-friendly and may help you age-in-place if that is something that interests you. For more information on reverse mortgages, read our white paper. Reverse mortgages have helped millions of older Americans secure a better retirement but they  aren’t a one-size fits all tool and shouldn’t be treated as one.

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