Reverse mortgage loans are a great tool borrowers can use to tap into a portion of their home equity to help with cash flow and retirement goals. Home equity conversion mortgages (HECMs) are the most common reverse mortgage loans. But, like any financial product, they aren’t for everyone. Here’s a list of the qualifications that make a good reverse mortgage candidate.
Meet the Age Requirement
To be eligible for a HECM, borrowers must be at least 62. There is more flexibility with the age requirement for a proprietary reverse mortgage loan since these are not government-insured and are serviced by private lenders. Age requirements for proprietary reverse mortgages vary but can be as young as 55.
Have Adequate Cash Flow
As part of the terms of their loan, reverse mortgage borrowers must maintain their homes and pay home association dues, property taxes, and insurance. Keeping up with these ongoing eligibility requirements may be difficult without adequate and stable cash flow from other sources like retirement savings and investments.
You Plan to Stay in Your Primary Residence Long-Term
To be eligible for a HECM and a good reverse mortgage candidate, the mortgaged home must be your primary residence and you must reside there most of the year. If you foresee an issue and you think you’ll need to move within a few months, a reverse mortgage may not be a good choice. For instance, a temporary stay in a facility will not impact the loan, but any stay over 12 months may render the loan due and payable.
Reverse mortgage loans are a great tool borrowers can use to tap into a portion of their home equity to help with cash flow and retirement goals. Currently, home equity conversion mortgages (HECMs) are the most common reverse mortgage loans. But, like any financial product, they aren’t for everyone. Here’s a list of the qualifications that make a good reverse mortgage candidate.
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Gaps in Your Retirement Plan
Planning for retirement means ensuring you have allotted enough funds for future expenses. Many people’s retirement plan is fine as long as they don’t run into any unexpected expenses. A reverse mortgage line of credit can offer a stopgap for potentially large and unplanned expenses like emergency or long-term medical costs, higher cost of living due to inflation or simply living longer than you expected.
Desire to Age in Place
If you want to stay in your home as you age, funds from a HECM and the removal of required monthly mortgage payments can be instrumental in helping you afford it. Reverse mortgage proceeds can help you pay for necessary modifications to your home. Because you can take proceeds in multiple ways, choosing a line of credit may give you the flexibility to access funds as your needs change.
Be Sure You Understand the Loan Terms
Even if you think you’ve checked all the boxes and a reverse mortgage is right for you, it is important that you fully understand the terms of the loan and its impact on your financial situation. Working with a professional financial advisor to get a clear picture of how this loan could work with your retirement plan is a great first step.
Seniority is published by Finance of America Reverse LLC. The views expressed in this publication are those of the author alone and do not necessarily reflect the views and opinions of Finance of America Companies. This article is intended for general informational and educational purposes only and should not be construed as financial or tax advice. For more information about whether a reverse mortgage may be right for you, you should consult an independent financial advisor. For tax advice, please consult a tax professional.
