When Is it Best to Use Reverse Mortgages?

Supplement Retirement

When you need money to supplement your retirement income, a reverse mortgage might be something to consider. Many retirees simply do not have enough money coming in from Social Security, pensions and other retirement plans to make ends meet. When this is the case, using a reverse mortgage can help bring in some more money on a monthly basis. With a reverse mortgage, you can get a monthly payment from the mortgage lender out of the equity in your home.

Before taking out a reverse mortgage, you also have to think about the impact that it can have on an inheritance. If you do not have children or other beneficiaries who you want to leave an inheritance to, the reverse mortgage can be an attractive option. If you are worried about how much you will leave for your heirs, then the reverse mortgage may not be for you. With a reverse mortgage, you essentially use up the equity in your house and your estate repays the loan.

You may want to use a reverse mortgage when you have a need for a lump sum of money, but you do not want to have to worry about a payment. With a reverse mortgage, you can take out a lump sum of money from your home equity in addition to receiving monthly payments. Once you borrow the money, you do not have to worry about paying it back while you are alive and living in your house. By comparison, a home-equity loan requires monthly payments.

If you receive Medicaid benefits or applying to receive them, you may want to avoid getting a reverse mortgage. When applying for Medicaid benefits, the amount of money that you get from the reverse mortgage will count as an asset, and could negatively affect your approval for Medicaid benefits. If you are not intending to apply for Medicaid benefits, this should not affect your decision, one way or the other.