Top Ten Reverse Mortgage Mistakes

Stock market turbulence has caused many Americans to rethink reverse mortgages. While many of us dream of living debt-free, in a paid-off home, the realities of rising health care costs and utility bills require us to think more creatively about managing our month-to-month income during retirement. Avoid these ten common reverse mortgage mistakes to get the biggest benefit from your property:

1. Settling for a lender with a small selection of reverse mortgage products.
   Plenty of lenders have jumped on the reverse mortgage bandwagon, hoping to drum up business. While shopping for reverse mortgage quotes at your local bank or with your current lender might be convenient, it can prevent you from finding the right solution for your unique situation. Experienced lenders with diverse offerings can maximize your retirement cash flow.
2. Not shopping around for the best reverse mortgage quotes.
   Your existing lender may have served you well while you built the equity in your home. However, it might not have the same kind of risk tolerance required to get you the best deal on a reverse mortgage. Shopping online and in your community for better reverse mortgage quotes can save you thousands of dollars over the course of your loan.
3. Favoring fixed-rate reverse mortgage quotes over ARM deals.
   Fixed-rate mortgages trade flexibility for lower interest rates, which makes sense when paying off principal. However, your principal grows over time in a reverse mortgage, making flexibility more important. Even when adjustable mortgage rates remain volatile, the ability to quickly renegotiate your reverse mortgage and cash out additional equity may trump the desire to lock in a fixed percentage.
4. Waiting to shop for reverse mortgage quotes until your existing home loan is paid off.
   You no longer need to wait until you have achieved 100% equity to tap the value of your home. Experienced reverse mortgage lenders can structure transfer deals that allow most homeowners to start receiving disbursements from their home equity instead of making monthly mortgage payments.
5. Accepting a reverse mortgage without a cost of living increase agreement.
   Just as your original monthly mortgage payments became more affordable over the years, inflation may reduce the impact of your reverse mortgage disbursements. Rather than pay additional closing costs to refinance your reverse mortgage, experts suggest building in a sliding scale of disbursements that grow along with your projected expenses.
6. Failing to include rising property maintenance into your reverse mortgage math.
   Even if your home equity can sustain a few major capital projects over the next few decades, you can avoid the cost of refinancing by including a budget for maintenance in your regular disbursements. A portion of your disbursement can be set aside for emergency home repairs, allowing you to move quickly if you need to replace a roof or fix leaky plumbing.
7. Paying taxes on your reverse mortgage disbursements.
   You already paid taxes on the money you earned to build equity in your home. Therefore, you owe no tax on the equity you cash out from your property. Some senior citizens mistakenly assume that taxes will erode too much of a monthly disbursement to make a reverse mortgage financially feasible.
8. Not considering government assistance in your reverse mortgage quote.
   Pay specific attention to any local, state, or federal income caps on Medicare or other government programs. Even though your disbursements are non-taxable, some agencies may count them against income guidelines for insurance and senior assistance programs. If you plan to participate in such programs, ensure that your monthly disbursements don't exceed program guidelines.
9. Signing a reverse mortgage deal without a non-recourse clause.
   Depending on your lifestyle and the quality of your health care, there is always a chance that you may outlive the amount of equity available in your home. A non-recourse clause in your mortgage paperwork protects you if your property loses value over time.
10. Not considering a reverse mortgage in the first place.
    Rising health care costs and growing estate taxes make it harder for a home to pass intact across generations. Reverse mortgage lenders can facilitate refinancing with your heirs, who can choose to sell the property or pay off outstanding principal. For many families, a reverse mortgage is a better solution than pitching in on monthly expenses while waiting for an inheritance.

Used wisely, a reverse mortgage can help you and your family enjoy steady cash flow and long term financial security for the rest of your life. By shopping for reverse mortgage quotes from a variety of lenders, you can prevent all ten of these common mistakes.