Iowa Fiduciary

Is a Reverse Mortgage for Me?

A reverse mortgage is a way for homeowners ages 62 and older to leverage the equity in their home. You may be wondering why anyone would want to borrow against a home they worked hard to pay off. Here’s how reverse mortgages work, and what homeowners considering one need to know if you’re nearing retirement.

Like many Iowans nearing retirement, you might be wondering about the best financial course to take and how to best use the money and assets you have worked to build over time. You most likely have built up your equity over the years and you may even own your home free and clear. For many baby boomers, the home is the largest asset they have and may be wondering if a reverse mortgage is also right for you.

If you are thinking about a reverse mortgage, here are some things to consider.

What is a Reverse Mortgage?

A reverse mortgage is a financial agreement in which a homeowner relinquishes equity in their home in exchange for regular payments, typically to supplement retirement income. So how do you know if this is something that could work for you and your financial situation? The answer will vary from person to person depending on their individual circumstances. The reverse mortgage is a great loan but that doesn’t mean that it works for everyone depending on their situation. 

Ultimately a homeowner needs to assess where they are at in life with regard to finances and expenses, where they want to live during their retirement years or for the foreseeable future, what is the best case scenario and worst case scenario of the options they have, and then find out if the reverse mortgage can help them accomplish those goals. 

Here are 3 questions you can ask yourself to see if you’re ready to consider a reverse mortgage.

Do You Wish To Stay in Your Home?

This is the most important question to ask yourself if you are thinking about getting a reverse mortgage versus putting your house on the market. If you don’t plan to stay in your home, or if you don’t plan to be there for the long term – a reverse mortgage may not be the right option.

If, like the vast majority of Iowans, you do wish to remain in your home while you age, then this type of loan, designed expressly for the purpose of aging in place, is an option to consider. If you want to sell your current home the reverse mortgage may not be a good option for you. 

However, a reverse mortgage can be used to purchase a new home. Many times, homeowners who do not wish to stay in their current home will sell that home and then use the reverse mortgage to buy their next property. This allows them to help maximize their assets rather than having to buy a home outright for cash and depleting those assets.

How Much is Your Home Worth?

In order to qualify for a reverse mortgage, you must be at least 62 years of age and you must have a substantial amount of home equity. In order to get a reverse mortgage, all existing loans on the home must be paid off.

Borrowers are able to use loan proceeds to pay off the existing mortgage and then can receive any remaining proceeds through a lump sum, term or tenure payments, or as a line of credit.

Selling may be an option for you, but the recent housing crash has left many homeowners with a lot less in home value than they had five years ago. Getting a reverse mortgage with the potential to help increase cash flow could be a viable alternative to selling at a loss.

Is Your Home Equipped for Your Needs?

A borrower is allowed to use reverse mortgage proceeds however they decide to choose. One way some borrowers choose to use their proceeds is to make home improvements or modifications so that the home is better suited for aging in place.

Some changes to consider may be:

  • Wheelchair accessible ramps or chair lifts
  • Wider door frames
  • Additional lighting
  • Main floor living quarters
  • Door pulls and handrails for easier access

Changing your home to meet your standards of living through a reverse mortgage could allow you to remain in the home where you live rather than moving into a new residence. Deciding where to live in retirement and whether you will move away from the home where your family has lived for years is a major decision, as is taking out a loan to help you meet your financial needs in retirement.

Last Thoughts

Trying to figure out if a reverse mortgage is for you can be a complex task. There are many positives and negatives to a reverse mortgage. When trying to make financial decisions it’s always best to consult your trusted Fiduciary advisor who is experienced in all things retirement planning as well as estates and mortgages. 

For more information on Fiduciary services and Estate Management in the state of Iowa, reach out to your trusted Iowa advisors at Johnson Wealth Income Management here today.

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