A reverse mortgage might work well for you if you’re a senior who is in need of cash and you have most of your net worth tied up in home equity. However, understanding the intricacies of these loans and taking a look at the associated costs is crucial because they don’t work equally well for everyone. For example, while a reverse mortgage might help secure your retirement, losing your home to foreclosure is a possibility if you’re not careful with your finances.

Numbers Speak

A press release shared through the National Reverse Mortgage Lenders Association website highlights that the housing wealth of seniors (62 years and older) grew by $520 billion or 4.91% in the first quarter of 2022 when compared to the fourth quarter of 2021. It also touched a record high of $11.12 trillion. The release suggests that the main driver behind this rise is an increase in home values by around $563 billion or 4.4%, with a $43 billion or 2.09% increase in the debt that seniors hold working as a compensating factor.

Data released by Statista shows the origination of more than 49,000 home equity conversion mortgages (HECM) in the United States in 2021. This was significantly more than 41,859 in 2020 or 31,274 in 2019. The number hovered between around 48,000 and 60,000 from 2012 to 2018. The period of the Great Recession from 2007 to 2009 saw a significant number of reverse mortgages, with the number reaching a peak of 114,692 in 2009.

While there are predictions of the U.S. going through a recession in 2023, not all financial experts, Goldman Sachs included, are on the same page. Besides, with home prices being on the higher side, it might be a good time for seniors who’re thinking about tapping into their home equity.

What is a Reverse Mortgage?

In simple terms, a reverse mortgage lets homeowners who are 62 years of age or older borrow a part of the equity in their homes. The key difference between a regular mortgage and a reverse mortgage is that the mortgage provider pays the homeowner in the case of the latter. The money you receive through this type of mortgage could be tax-free, although you need to consult with a tax advisor.

A reverse mortgage gives you the ability to keep living in your house if you’re having trouble keeping up with your finances and are considering selling because you need the money. The lender receives the funds it provides after everyone in household has passed away, if you sell the home, or if you relocate permanently.