How can you deal with retiring when your income is too low? One way is to use a reverse mortgage to take advantage of your home equity, assuming you own a home. You can even explore options for refinancing reverse mortgages when you need to, such as if you want to add your spouse to the agreement after the fact. To initially get such a loan, a reverse mortgage calculator is used. The reverse mortgage calculator is necessary because it takes into account current formulas and regulations in its calculations. Once the loan is in place, you pay it back many years down the line. No current repayment obligation is in place, so you can enjoy retiring your way.

Lately, I’ve heard a lot about how these reverse mortgages can be a Godsend to elderly couples who either don’t have the financial freedom to live a good life after retirement, who want to make modifications so that they can age in place or who have suffered enormous financial strain due to medical bills and caregiving costs.

According to AARP, more than 78,000 reverse home mortgages (also called Home Equity Conversion Mortgages or HECMs) were insured by the Department of Housing and Urban Development last year.

There are even men and women who specialize in obtaining reverse mortgages for clients who are calling themselves Geriatric Care Managers.

First, let me tell you that in order to be a geriatric care manager, a person needs to have been educated in nursing, gerontology, certain areas of psychology or clinical social work. So please beware of financial personnel who use that term to describe themselves.

Before rushing into a Reverse Home Mortgage, there are some things to be considered.

1.  You can obtain a reverse home mortgage from a traditional lender but the borrower must be at least 62 and the home must be owned outright or the ability to pay it off with the reverse mortgage must exist.

2.  You must live in your home and the home must meet certain Housing and Urban Development (HUD) department standards such as having the necessary fixtures that make it habitable.  Single-family homes qualify and some condominiums, modular homes and duplexes may also qualify.

3.  You must see a reverse mortgage counselor before you apply for the mortgage and there will be a fee for this session.  It will be about $125.00 and it can be rolled into the loan.  But unlike regular home loans, you must be able to pay your property taxes, homeowners’ insurance and homeowners’ association fees separately.  (This is because you do not need to make monthly mortgage payments immediately upon obtaining your reverse home mortgage.)

4.  In fact, you (or your estate) do not make payments on this type of a loan until you die, move or sell your home, and at that time, the estate pays off the reverse mortgage plus interest and any loan fees.

But what if one spouse dies?  Must the other spouse immediately pay off the reverse mortgage?  Well, that was the case until recently.  In a situation where one spouse died and the remaining spouse  (who was not listed on the reverse mortgage documents) was in danger of having his home foreclosed, a lawsuit was filed and changes have been made.  Read more about that HERE in an article written by Carole Fleck of AARP.

5.  When you are approved for a reverse home mortgage, you may receive the money in a lump sum, as a line of credit or in monthly payments TO you.   These mortgages are available with both fixed and variable interest rates.

6.  As with other home loans, there are substantial fees.  Loan origination fees, closing costs, interest, mortgage premiums and service fees, so you must be very careful that there will be enough money to cover these additional costs as the loan is paid off.

According to an article by Tara Coates in AARP, an example would be:  the standard HECM loan (reverse mortgage) charges a 2 percent mortgage insurance premium upfront on the home value – not the amount borrowed – as with regular forward mortgages. For example, if you own a $400,000 home, the upfront MIP would be $8,000 – whether you borrow $30,000 or $200,000.

These loans may serve a particular portion of the population but they are not for everyone.  There are other alternatives which should be explored such as selling the home and purchasing a smaller one, renting out a room to a family member or close friend, refinancing to a lower percentage of interest, or selling off an insurance policy by way of a “life settlement” (which requires a large life insurance policy).  Also remember that for medical expenses, Medicaid is a possibility and a person may still own their own home, a car and several thousand dollars and still be able to qualify.

There is one other thing to consider and I’ve left it until the end for a reason.  With a reverse home mortgage, there may not be an inheritance left for the children or other possible beneficiaries.   This may cause discord amongst family members but remember that the most important consideration is the well-being of the person who may wish to utilize the reverse home mortgage option.