For a senior who may be looking to unlock the equity locked in their home while still remaining there, a reverse mortgage can be a viable option. However, there are scenarios in which a senior both should and should not consider getting a reverse mortgage, while also keeping in mind other potential alternatives that exist in the marketplace for unlocking home equity. This is according to a new column published by Fox Business and authored by finance comparison site Credible.
While describing reverse mortgages as having become “more popular” during the COVID-19 coronavirus pandemic with seniors looking to bolster cash flow, that newfound popularity should not be a consideration on its own, according to the column.
“Despite their popularity, reverse mortgages aren’t for everyone,” the column reads. “Aside from the age requirement, these loans have some other limitations. In this article, we’re breaking down when you should and shouldn’t consider a reverse mortgage.”
After touching on the eligibility requirements – which focused primarily on the borrower needing to be at or over the age of 62, live in the home as the primary residence and pay associated taxes and insurance – it describes some scenarios in which a reverse mortgage could be beneficial for a prospective borrower.
“A reverse mortgage might be a good idea if you’re 62 or older and need a source of income,” the column reads. “The money can be used to pay monthly bills, cover medical expenses, and more. For a reverse mortgage to be a good option, you must have substantial equity in your home since you can only borrow as much equity as you have.”
The article does not specify that loan proceeds are not actually defined as “income,” however, which would be subject to the collection of taxes, which a loan’s proceeds are not. The article does say that borrowers are not required to meet an income or credit score requirement, and that since many seniors do not work in later years, “a reverse mortgage could be the only option,” it says.
It then moves onto possible scenarios in which a senior should not consider getting a reverse mortgage, focusing mainly on a senior who may want to leave his or her home to an heir.
“A reverse mortgage can be an excellent way for seniors to borrow against the equity in their homes, but they aren’t right for everyone,” the article reads. “A reverse mortgage isn’t available to anyone under the age of 62. This loan option also likely isn’t suitable for anyone who wants to bequeath their home to a loved one after they pass away. Because the loan must be repaid when the original borrower passes away, most families ultimately must sell the home to pay back the loan.”
In terms of potential alternatives, the article cites products such as the sale of the home; a cash-out refinance; or a home equity loan or home equity line of credit (HELOC).
Read the article at Fox Business.