Deciding to sell your home is never easy. Reverse mortgages can be very alluring. Refinancing your house with a reverse mortgage may be the right decision for you, but it may not.
Selling your home and refinancing with a reverse mortgage both have one serious drawback: with either option, you limit your options should your situation change sometime in the future. With a reverse mortgage, you may not be able to sell your home later if you need to. If you sell it now, you won’t have it to sell later. The only choice you have that doesn’t constrain you in the future is to do nothing.
The numbers shown in here derive from the scenario presented in a previous post. They assume your house has an appraised value of $200,000 and you own it free-and-clear.
I hope the following comparison table makes it easier to choose.
|Reverse Mortgage||Owner Financed Sale||Traditional Sale||Do Nothing|
|Can I continue to live in the house?||Yes. In fact, it’s a requirement.||No||No||Yes|
|Can my children continue to live in the house to take care of me or my spouse?||As long as one of the mortgagors lives full-time in the house||No||No||Yes|
|Can I down-size to reduce living expenses?||No||Yes||Yes||Yes|
|Do I have to have a high equity in the house?||Yes||No, but the more equity you have, the more income you can produce||No||No|
|Can I sell the house later if my needs change?||Yes, but it becomes more difficult the longer you hold the reverse mortgage.||No||No||Yes|
|Is there an age requirement?||The youngest applicant must be 62 or older.||No||No||No|
|Is there an income requirement?||Yes||No||No||No|
|Will it produce a secure monthly income?||So long as all other conditions of the mortgage are met||Yes, assuming you’ve done due diligence on the buyer||One-time payment||No|
|How much would I make over 15 years?||$117,360||$330,778 at 6% APR. If you need cash up front, it reduces the amount of interest you could earn.||$200,000 as a one-time payment||Nothing|
|What would that be in monthly payments?||$652||$1,687 for 15 years||$0||$0|
|Can I leave money to my heirs after the Medicaid spend-down?||No||If all the paperwork is written correctly||Possibly, depending on how you manage your money|
|Which option is best for my family and me?|