Here are a few situations when a reverse mortgage is not a wise choice.
A reverse is not the right loan for short term needs. If you only need the money for a short period of time and are planning on paying it off prior to 5 years, a reverse mortgage is just not an appropriate financial tool. The upfront closing costs will make the cost of the money (APR) non competitive. The minimum recommended amount of time is five years.
Both homeowners should be on title for a reverse mortgage. If your spouse is under age 62 beware of lenders who encourage you to remove them from title. A reverse mortgage must be repaid when the last person on the title moves out of the property permanently or passes away. So, if you were to pass away before your spouse and your spouse was not on title, the reverse mortgage would become due even though your spouse is still living in the property.
Risky investments If you are being encouraged to get a reverse mortgage so that you can use the money to invest in stocks, start-up companies, real-estate, or any other type of investment, you should take a good hard look at what the person encouraging you stands to gain. Chances are they're asking you to take big financial risks at a time in your life when you should be conservative. If your home is your only asset, don't risk it.
Annuities - Unethical life insurance salesmen have on occasion encouraged homeowners to take out a reverse mortgage and then try to sell the homeowner an annuity. That is wasteful because the reverse mortgage has a built-in annuity feature called "term" or "tenure" payment. I'm sure that there are some perfectly good annuity products on the market, but if the person encouraging you to get a reverse mortgage also brings up annuities.... BEWARE! They may have their own financial interest as a priority and not yours!
The above reasons are not the only reasons a reverse mortgage may be the wrong fit for you, a good reverse mortgage professional (like me!) will help you to understand all of the benefits and liabilities of a reverse mortgage for your situation.
Remember, all reverse mortgage borrowers must receive special reverse mortgage counseling from a HUD approved counseling agency before they can begin processing on a reverse. I encourage homeowners to have their trusted advisers or children participate in counseling as well. Your loan officer should not attend the counseling session with you, either on the phone or in person.
Deborah Nance
Your Local Southern California Reverse Mortgage Professional
I have not seen a reverse mortgage that I though was right for me.