WHAT YOU NEED TO KNOW

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THE BASICS A reverse mortgage is a loan against the equity in your home. To qualify, you must be at least 55 years old and own your home outright or have a sizable amount of equity in it. You can borrow up to 55 percent of your equity, and you’re not required to pay it back until you sell the home, move out or pass away (in which case, your estate will approved, you can receive the loan as a lump sum, scheduled payments or both. That money, plus any interest, can be paid back at any time; however, there will likely be a penalty if this is

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THE CHALLENGES The longer you stay in your home after you take a reverse mortgage, the greater the drawdown on your equity, as the compounding interest on the principal can accumulate quickly. It’s possible there will be little to no equity remaining when you leave your home—meaning less, if any, inheritance for your neither you nor your estate is liable for any shortfall if housing prices drop and the outstanding mortgage balance exceeds the value of the home.

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THE BOTTOM LINE With a reverse mortgage, you’ll enjoy tax-free funds and have the opportunity to stay in your home, but you’ll greatly erode what is asset and what may be - cial independence. You’ll pay higher fees and a higher interest rate than you would on a conventional mortgage. Most importantly, when you run out of the money you borrowed against your home equity, there may be no cash left after the sale of your house.

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THE OTHER OPTIONS A reverse mortgage is a good choice for people who want to access some of the equity in their home without the worry of repaying the mortgage while they’re living there. If these realities don’t resonate with you, consider an alternative solution. Think about selling or downsizing your home and putting the proceeds into a safe investment, then living This may also allow you to move into a retirement facility, if that’s an option. If you’re set on staying in your home, you might want to consider an equity line of credit, which is a secured loan; you’re required to make interest-only monthly payments—at a much lower interest rate—and you until you leave your home.