I am considering a reverse mortgage. In general, what do you think of them and do you have any thoughts on who does the best job with them. I am 77 and have very good equity in the house and we would like to do a lot of work to the house. We have been in it a long time. Much to my surprise, I was turned down on a home equity loan despite having very good total assets and almost perfect credit scores. Thank you for your thoughts on this.

Terry Says:  It’s not surprising that you were turned down for a home equity loan.  Those are based on INCOME — and I’m guessing that you are retired and don’t have a steady income except for Social Security, IRA withdrawals, etc.  So I always advise people to make their move before retirement so they can get a mortgage.  And I don’t think home equity loans are a good idea once you’re retired, since most require interest-only payments, leaving you with a balloon — and because rates can fluctuate.

In fact, you are the perfect candidate for a Reverse Mortgage.  Here’s a link to an article I wrote not long ago explaining how they work and what you need to know.   You will be required to have independent counseling (typically from the National Foundation for Credit Counseling or AARP or other approved agency), so you will have a chance to ask questions.  But if you are planning (hoping) to stay in your home for at least five years, a reverse mortgage is an excellent way to withdraw tax-free cash from your home.  Please read the article for more details.  I have often noted that my own father — now turning 95! — has had a reverse mortgage for about 15 years.  It’s been a great deal for him (not so great for the lender who cannot recoup more than the value of his condo when he moves out or passes on).

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