Housing

Should you get a reverse mortgage?

Reverse mortgages can definitely help cash-strapped retirees generate extra money for living expenses. But they carry stiff fees, nearly three times as much as those on a traditional mortgage. Upfront fees can exceed 10% of the loan in some cases.

Loan-origination fees (part of the upfront costs you pay to take out such a mortgage) can top $7,000 on a $500,000 home. Those sums are attracting aggressive sales people intent on getting you to take out a reverse mortgage whether you need one or not. Some may try to persuade you to invest the proceeds in high-priced financial products, such as annuities, boosting their commissions even more.

Because of the high upfront costs, a reverse mortgage is usually not a great option if you’re borrowing a small amount or you plan to move in a few years. You might pay far less by taking out a home-equity line of credit. Or you may be able to generate more income by selling and moving to a less expensive place.

Because of all these downsides, the federal government requires you to meet with a counselor before taking out a reverse mortgage. If you think you might be interested, you can find a counselor in your area (along with lots more info about reverse mortgages) at the Department of Housing and Urban Developments’ web page.

If you want a rigorous analysis of whether you’re better off with a reverse mortgage or a less expensive home, consult a fee-only financial planner. To find one near you, go to napfa.org

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