For many Americans, a reverse mortgage is attractive because they offer a way to keep their home.  Seniors especially, who may be overwhelmed by medical bills and property taxes, benefit greatly from such a program. The bad reputation that reverse mortgages has comes from many situations where people didn’t make decisions that were positive for them, often they did not obtain sound advice from people they perhaps should have talked to first. I would strongly recommend that prior to entering into this arrangement, you discuss the matter thoroughly with someone who is well versed in financial matters who has your best interest in mind and has nothing to gain by any action you take.  Despite its high closing costs the reverse mortgage program can work in some cases, so long as you take these things into consideration:

1.  How it works:  Revere mortgages (or HECM) allow you to convert a portion of your home’s equity into cash.  Borrowers do not need to repay that cash until the home is no longer their principle residence or if they fail to meet mortgage obligations.  HECM, however, is only available to Americans 62 and older who currently live in the residence the reverse mortgage is being taken out on.  More information on these mortgages can be found here.

2.  Is the lender reputable?  There are many scams out there, so getting to know your lender’s reputation and past is important.  The HUD/FHA is one of the best, most reputable lenders.

3.  Lump sum payments can be dangerous:  More than 70% of those borrowing under an HECM program elect to have their money paid out in a lump sum.  That means, once the money is gone, it’s gone forever.  That means you can still lose your home even after taking out a reverse mortgage.  While lump sum payments are at a fixed rate and monthly payments are adjustable, those monthly payments could mean more stable income that allows you to stay in your home.

4.  Dirty little secret: When a homeowner has remarried, his or her death could result in their spouse being evicted from the home.

While reverse mortgages are a good option for staying at home, they should only be used when all other alternatives have been exhausted.