Homeowners who are at least 62 years of age who could use an infusion of cash may have the option of taking out a home equity conversion mortgage.
These are reverse mortgages that are supported by the United States Department of Housing and Urban Development. With a reverse mortgage you surrender equity in your home to a lender and you receive liquidity in return.
This can sound appealing, but you have to understand some of the pitfalls. A home equity conversion mortgage is a loan, not a gift or an outright sale so you have to pay interest. There are also closing costs, and loan servicing fees will be applicable. There will be appraisal charges and legal fees, and you will be required to pay reverse mortgage insurance premiums.
This is all real money that comes out of the value of your home.
Over the years you may have seen one of those bumper stickers that says something to the effect of “We are spending our children’s inheritances.” That may give some people a chuckle, but others care a great deal about being able to leave something behind to their children.
If you take out a reverse mortgage you are indeed spending a portion of your children’s inheritances, and for many it could be the most significant portion.
The wise course of action would be to take pause and discuss your options with an experienced retirement planning attorney before taking out a home equity conversion mortgage. Your lawyer will evaluate your situation and apprise you of any options that may exist for you that may be more cost-efficient than a reverse mortgage.