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Should my wife and I look for an alternative to a reverse mortgage?

My wife and I are thinking about getting a reverse mortgage. Our home is valued at $190,000, we have a first mortgage of $65,000, and an equality loan of $15,000. Our current first mortgage rate is 5.0% with a 30 year fixed rate. My question is, should we go with a reverse mortgage or is there a better alternative to a reverse mortgage? I am 68 years old, my wife is 72, we have a fixed limited income, and need to lower our monthly rate. What do you recommend as an alternative to a reverse mortgage, if any?

Debt, Financial Planning, Real Estate
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June 2017

This is an excellent question. There are a few simple things you want to ask yourself first:

  1. Is it our desire to remain in our homes as long as possible? 
  2. Is it financially sensible for us to stay in our home as it exists now
  3. How would or could our life/retirement be different if we no longer had to make a monthly loan payment?  

An honest answer to those questions will open up a broader conversation about the best ways to use Home Equity in Retirement Planning.  Here are a few possible scenarios:

  • Today's HECM Reverse Mortgage will make around 50% of your homes value available (maybe a little more). So lets say around $100,000 
  • From that you would pay off the $65,000 and the $15,000 loans respectively
  • The Big Question is: What does eliminating that mandatory monthly loan payment do for your Lifestyle and Retirement?  

Since you are on a fixed limited income, does the savings that comes from not having to make a monthly loan payment make sense and add value. If it does then the HECM is worth exploring. If not, then here are a few common alternatives:

  • Sell the home and rent (even senior subsidized rental) depending on your situation. This allows you to create a nest egg after the sale of over $100,000 and you live off of that combined with your current income
  • Sell the home and downsize or supersize using the HECM for Purchase. This too creates a nest egg, but using the HECM for Purchase also eliminates the need for mortgage payments in your new home
  • Refinance to a lower rate and lower payments.  Because of your age, fixed income and inflation, this solution may just be putting a Band-Aid on the problem as you would still have a monthly mortgage payment and the stress of making that payment as you age

I suggest answering the questions above. I did a PBS sponsored video on Reverse Mortgages in Retirement Income Planning, you can find it by clicking HERE  -dg

June 2017