Credit and Debt Blog

Home Equity Conversion Mortgages (HECM), also called reverse mortgages, are one of the hottest products available to the increasing number of baby boomers entering retirement. In order to assess whether a reverse mortgage is right for you, you should understand the costs and benefits associated with a reverse mortgage.

First, consider the benefits of a reverse mortgage. If you are house rich and money poor, you may feel the pressure of upkeep on your home while paying ordinary living expenses. You have a good net worth, but you cannot tap into it.

A reverse mortgage allows you to benefit from the investment you have built into your home by receiving mortgage payments from the lender. They are buying an interest in your home and allowing you to stay in your home.

The price you pay for staying in your home is made through higher fees and limits on equity that you can tap. This means that the fees are higher than most loan products, and you cannot receive the full amount of the value of your home.

You have the option of receiving larger payments, but that means that you can only receive these for a few short years. You risk running out of income before death.

You can get guaranteed payments for life, but these are much smaller. This tends to benefit those that live the longest.

The cost to any heirs is that they would need to pay off the loan balance in order to retain ownership of the home. If you have no heirs, then a reverse mortgage can work well. If you do want to give the home to your heirs, then consider what they would have to pay to keep the house. If they are not able to qualify for a mortgage or afford payments, then they likely could not keep the home.

A reverse mortgage is not for everyone, but it can provide some much needed income when you need it. If you are considering a reverse mortgage, make an appointment to meet with a HUD approved reverse mortgage counselor.

They can help you evaluate the costs and benefits of a reverse mortgage. They will not make the decision for you. Their role is to help you understand the pros and cons of a reverse mortgage so that you can make the right decision for you.