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Reverse mortgages have advantages, disadvantages

A number of baby boomers have reached retirement or are only a few years away from it. As it turns out, though, many from this generation have not saved enough money ... and in some cases, none at all. This is head-scratching news that brings forth a number of questions such as “What happened?” and “What potential solutions are there for me?”

Roughly 41 percent of baby boomers have no retirement savings accounts, according to the Employment Research Benefit Institute. In addition, 44 percent of baby boomers in retirement will not have enough income for basic living expenses.

Tap into your home’s equity

If all is not looking well for baby boomers entering retirement, there is something working in their favor. Roughly 74 percent of them are homeowners. Tapping into their home equity could prove to be a potential retirement solution for aging baby boomers.

How can they do this? Through a reverse mortgage, which is a different kind of loan. With it, no payments need to be made while you live in the home. Payments on the loan, though, must be made when you move out or sell the home, or die. When you apply for a reverse mortgage, the lender determines how much you can borrow based on your age, value of the home, and the interest rate.

To qualify for a reverse mortgage, homeowners must:

  • Be at least 62 years old
  • Own the home outright
  • Be able to pay off the remainder of the mortgage from the reverse mortgage proceeds

Pros and cons

A reverse mortgage just may prove beneficial. Before signing up for one, it is critical you understand how this loan works. There are pros and cons to a reverse mortgage, and here are some of them:


  • It is a ready source of cash, and you can still call it home. Borrowers can rely on some of their home’s equity and continue to live and own the home.
  • As long as you’re living in the home, you don’t have to repay the loan.
  • Even if the home’s value drops, you or your heirs do not have to repay more than the value of the loan.


  • The loan includes higher closing costs and a higher interest rate than traditional mortgages. This fact has led to many people to no longer consider a reverse mortgage.
  • You’re essentially reducing the estate you leave to your heirs. After your death, you won’t be able to leave the home to family members.
  • Once a reverse loan mortgage closes, it is difficult to change the loan terms.

For some people, a reverse mortgage may be the right solution for retirement. But remember, do your research before committing to one. Make sure you are comfortable with your decision, and there will be no surprises.

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