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It sounds simple. A reverse mortgage will give you extra money for living expenses or health care or prescription drugs. So why not sign up? Not so fast.
"A reverse mortgage is serious business," says consultant Ken Scholen. "It's a very expensive loan." Here are five questions to ask yourself before you take the next step.
1. Have I investigated less costly options?
"Look very carefully at alternatives, including a home equity loan, downsizing, selling and moving," says Scholen. "You may discover that you'd prefer to live in a different place at a lower cost."
2. Does it matter how long I expect to stay in my home?
The upfront costs are so high that if you plan to move in a few years, a reverse mortgage probably isn't the best solution. But if you're older and need it to pay for home care or to remain at home, it could make sense.
3. Do I need the loan now?
The market is changing. You may get a better deal if you wait. Also, says AARP's Donald Redfoot, "the danger with taking a reverse mortgage too soon, for example, in your 60s, is that your nest egg won't be there down the road, when you might really need it."
4. Should I invest the money from a reverse mortgage?
No—the loan would cost you more than you could safely earn. Be wary of anyone who tries to sell you something and suggests using a reverse mortgage to pay for it.
5. Have I discussed this plan with my family and heirs?
Consider talking with your family about your concerns. You may be facing a choice between taking a reverse mortgage loan and asking family for financial help. In many cases, says Scholen, it's the children who suggest the reverse mortgage in the first place. "The family has to know what's going on," says Robert Sabol, of Strongsville, Ohio, who helped his mother take out a reverse mortgage. "The reverse mortgage may be a godsend, but the family has to understand the impact on the estate."
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