7 Real Answers You Need on Reverse Mortgages
NEW YORK (TheStreet) -- Reverse mortgages are a viable option for retirees who need extra money in their golden years, but is one right for you? Experts weigh in on the top seven questions you should ask before taking out a reverse mortgage.
1. Who are reverse mortgages right for?
If you're 62 or older and the majority of your wealth is tied up in your home, a reverse mortgage may be the right option for you, says Greg McBride, Bankrate.com senior financial analyst.
"When you don't have the luxury of having a paycheck come in, the single biggest worry among retirees is whether they have enough money. You're going to need money to see the grandkids, fix up the house and travel. Accessing the equity in your home is a great way to do all that."
Reverse mortgages can give retirees "breathing room" in what may otherwise be a very tight household budget, McBride says. Although many retirees may have had visions of giving their home to their children when they die, the money in the home may be better put to use now.
"I can tell you now as someone who has two retired parents, I don't want their house -- I want them to be comfortable and not worry about money," McBride says.
2. Who are reverse mortgages wrong for?
If the money you'd get from a reverse mortgage still wouldn't be enough to ensure you can pay your bills every month, it's not right for you, says Linda Sands, branch manager for Luxury Mortgage, a mortgage bank in Stamford, Conn.
"If you take out a reverse mortgage and use it to pay off your existing mortgage so you don't have that payment, that's great. But if you still can't pay your monthly utilities or car payment, it just doesn't make sense," she says.
For many retirees, their home is their biggest asset. The reverse mortgage "uses up" that asset, and makes either selling the home or passing the home down to heirs more difficult, if not impossible, says Ben Simiskey, CPA and CEO of PLS Advisory, a wealth management firm in Houston.
"People who need money may think of the reverse mortgage as a panacea, and it's not. It makes sense for some people, but many others have better options or future plans for their home," he says.
There's no one-size-fits-all description for bad reverse-mortgage candidates, so a counseling session from an impartial third party is mandated for anyone considering this type of mortgage.
3. Do I have to take the counseling session?
Yes. The counseling session is mandated, and you'll get a certificate of attendance when you complete the 60- to 90-minute session. The sessions are taught by HUD-approved third-party counselors who don't have ties to a lending institution or broker.
"We are not even allowed to take a full application before a borrower has had a counseling session," Sands says. "During the sessions, the counselor will make sure the person understands the full impact of what a reverse mortgage is and they'll find out if it's going to work for them financially."
Bring one of your children along with you if you think you'll have any doubt as to what the counselor may be saying, Sands says. It can get complicated.