Should I Get a Reverse Mortgage? Six Questions to Ask First

The secret to your retirement income could live in your home’s equity.

A small model house sits next to three stacks of coins and a white piggy bank.
(Image credit: Getty Images)

While saving for retirement is a major financial goal for many, not everyone saves or is able to save enough money to live on by the time they hit retirement age, leaving them wondering how they will manage to pay for living expenses and any unexpected costs that might crop up. A reverse mortgage is one solution to this problem. Instead of making mortgage payments to their lender, homeowners can relinquish their home’s equity back to the lender in exchange for payments they can use to cover their expenses. This can be a tempting solution if you’re worried about how you’ll cover costs during retirement, but it’s not the only solution for supplementing your income, and it may not be right for everyone.

So how can you know if it’s right for you? Here, six financial experts from Kiplinger Advisor Collective shed light on the pros and cons of a reverse mortgage and offer up critical questions you should ask yourself before deciding whether to take on this type of solution.

What are three viable alternatives to a reverse mortgage?
“A reverse mortgage is just one potential tool that can be used to solve a specific problem or achieve a unique goal. It may or may not be a good fit for you. Instead of getting trapped evaluating the viability of a reverse mortgage in isolation, challenge yourself (and your financial adviser) to uncover three additional solutions to analyze and consider. From there, you can review the pros and cons of each option and make an educated and informed decision that best matches your needs and goals.” — Taylor Schulte, Define Financial

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Can I afford the high fees and the risk to my family?
“Can I afford the high fees associated with these types of mortgages? Will my family potentially lose the house upon my death when they need it? If the answer to the first question is ‘no’ and the second ‘yes,’ then be very careful before going down this path. Reverse mortgages can tempt people with upfront payments that you ultimately will have to pay back.” — Andrew Schrage, Money Crashers LLC

Is this the right house for aging in place?
“Everyone wants to age in place, but before determining if a reverse mortgage is an appropriate option, it is important to think about whether this is the right house for aging in place. A reverse mortgage or home equity conversion mortgage can help individuals and couples use their home to stay in their home, but it is important to consider other factors, such as maintenance and upkeep.” — Marguerita Cheng, Blue Ocean Global Wealth

Kiplinger Advisor Collective is the premier criteria-based professional organization for personal finance advisors, managers, and executives. Learn more >

Do I need help paying for long-term care and other expenses?
“‘Do I have sufficient assets during retirement to pay for significant expenses such as long-term care expenses?’ If someone answers ‘no’ to this question, then that tells me that the person does not feel secure about their resources and being able to handle a significant expense. In most cases where someone does not have sufficient assets, the best solution could be using the equity in their home through a reverse mortgage.” — Mario Hernandez, Longevity Wealth Management

Do I want my house to go to my kids or grandkids?
“One important question to ask yourself is how important it is that your house eventually goes to your kids or grandkids. If you want them to keep the house, or much of its value, then be very careful to accurately assess how much of your equity the reverse mortgage might consume, and include interest expense in this calculation. Establish a maximum, and don’t borrow beyond that point.” — Greg Welborn, First Financial Consulting

Can I actually explain what a reverse mortgage is?
“One great question to ask yourself to determine if a reverse mortgage is right for you is if you can actually explain what a reverse mortgage is to someone who doesn't know and actually have it make sense to them. If you can't do that, well, it's probably not right for you. You need to fully understand it before knowing if it's right for you or not.” — Bob Chitrathorn, Wealth Planning By Bob Chitrathorn of Simplified Wealth Management

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The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

Kiplinger Advisor Collective

Kiplinger Advisor Collective is the premier criteria-based professional organization for personal finance advisors, managers, and executives.