Many retirees are trying to figure out if they have enough money to last. Some are looking at a reverse mortgage on their Sotheby’s Scottsdale home.
A reverse mortgage is not for everyone since it’s such an expensive proposition. For most people, they find a reverse mortgage will leave them with nothing if they try to get out of it by selling their Sotheby’s Scottsdale home. But financing retirement by drawing on your home equity does work for some people.
What Does a Reverse Mortgage Do?
Like the name implies, a reverse mortgage works in reverse. You borrow money against your Sotheby’s Scottsdale home. Interest is added to the balance. The lender eventually gets the money after you’re gone.
If you’re at retirement age, 62 or over, and your Sotheby’s Scottsdale home is either paid off or paid down, it generally is not a good idea to take out a reverse mortgage.
A reverse mortgage sounds like the perfect solution to all retiree’s cash flow problems. Retirees are told they get to stay in their own Sotheby’s Scottsdale home and live out their life since a reverse mortgage can’t be reduced, canceled or frozen.
Fortunately, there are more government protections today than there were a few years ago. Most are FHA-insured. The benefit of an FHA-insured loan is that if the balance left on the loan is more than what your heirs are able to sell the home for, they won’t owe the difference. This is great if a home is being left to children. At least they won’t be left with debt on your Sotheby’s Scottsdale home. With this said, only do business with an FHA-approved lender.
The Bad News
A reverse mortgage does take your home out of your estate unless your heirs can redeem it from the bank. Also, taking one out is not free. Many lenders tell borrowers they won’t have to make payments but that’s not the case. You’ll have to pay mortgage insurance premium. There are third-party charges such as appraisal, title search, etc You’ll have to pay the origination fee to process the loan along with a monthly servicing fee. Of course, there’s interest and property taxes, as well.
The amount you borrow depends on factors such as the youngest person on the loan, the current interest rate, and other factors. In some cases, you’re better off downsizing.
The Good News
Reverse mortgages, though, work if you didn’t save enough for retirement, you have no children, are in good health and willing to gamble that you’ll stay that way, you plan to live in your Sotheby’s Scottsdale home the rest of your life, and so on.
Before you do anything, though, sit down with a fee-only fiduciary advisor.