When To Get a Reverse Mortgage

looking into a crystal ballDetermining when to get a reverse mortgage is highly dependent on a variety of situations, needs, wants and plans. There is no one single answer that can address the correct timing of getting a reverse mortgage. That is, unless you are using the reverse mortgage as part of an overall retirement plan.

If you are going to use the reverse mortgage as part of an overall retirement plan, all of the research shows that the best time to get a reverse mortgage is very early in retirement or as soon as you can qualify which would be at age 62.

There are a variety of strategic uses with the reverse mortgage that may be able to provide a much stronger financial situation during retirement, reduce your chances of running out of money and even possibly leave a larger inheritance for heirs.

If you are not going to use the reverse mortgage strategically then there are some other things to consider and think about when it comes to the timing of getting a reverse mortgage.

What is the Best Age to Get A Reverse Mortgage?

In general, our mental faculties peak at about age 30 and start subtly declining. These declines include slowness in thinking, sustaining attention, and retaining information. This can lead to the inability to make well-reasoned and well-informed decisions.

In my experience, and this is a broad generalization, my older clients generally struggle with deciding if the reverse mortgage is the right decision for them. Even if they are in desperate need of the loan and it would improve their life dramatically, their fears keep them from moving forward. I’ve also had clients that I needed to talk out of getting a reverse mortgage because it made absolutely no sense to get one.

On top of this, there are other issues such as dementia. Early onset of dementia is usually not a big concern. But if the disease has progressed significantly, then a guardianship or conservatorship may need to be established to get the reverse mortgage.

If a guardianship or conservatorship is required, this can take months to get approved through the court system and cost thousands of dollars in attorney fees. The older you get the more likely you are to be diagnosed with dementia.

In other words, in general, the best time to get a reverse mortgage is when you are younger. Because it is going to be significantly less stressful, less emotionally taxing, and less anxiety producing due to cognitive decline. You will also be more confident in your decision, understand the benefits you are receiving, and have the ability to process and understand the information. Plus, you’re also less likely to run into additional costs and delays due to dementia.

Should You Wait to Get a Reverse Mortgage Until You Need One?

Generally, the worst time to try and borrow money is when you need it. If you are trying to decide when to get a reverse mortgage, when you really need it most is probably the worst time to get it.

I can’t tell you the number of times I have met with clients who decided to wait, because they didn’t “need” the reverse mortgage at the time. Who come back to see me months or even years later only to find out they no longer qualify for the loan.

There are all kinds of reasons why someone may no longer qualify for the loan at some point in the future. The reasons could be higher interest rates, higher debt levels, loss of income, changes to the reverse mortgage, late payments on credit obligations, new liens against the property, falling homes prices, etc.

You must look beyond the needs of today and look at the potential problems you may run into in the future. Health care, long term care, dental expenses, home repairs, loss of household income, loss of a spouse and inflation are all real financial risks that you may not be facing today but will likely be facing at some point in the future, especially as you age.

It generally makes much more sense to get a reverse mortgage early and while you still qualify, to use it as a backup plan or use it as part of an overall retirement plan. I have yet to have someone complain about getting a reverse mortgage because they never used it and didn’t need it.

There are other reasons to get a reverse mortgage now that can significantly improve your financial strength and reduce your financial risks during retirement. Just a couple of the strategies and reasons to get a reverse mortgage now instead of waiting include:

  1. Setting Up a Growing Line of Credit – Any funds in the reverse mortgage line of credit grow at the current rate plus .5%. In other words, you are setting up a source of income tax free funds that will increase every month and there will be more and more funds available to you.
  2. Continuing To Make Monthly Mortgage Payments – If you already have a mortgage, switching to the reverse mortgage and continuing to make payments can be a smart move. This is because if you structure your loan as a line of credit, every payment you make not only pays the loan balance down but increases the funds available in the line of credit dollar for dollar.
  3. Supplement Your Income – Instead of drawing your income solely from your retirement accounts. Reducing the amount you draw from your retirement savings and making up the difference with reverse mortgage proceeds can help your retirement funds last longer and reduce your chances of running out of money.

Those are just three of many reasons why it generally makes more sense to not wait to get a reverse mortgage because of the massive future benefits you will gain by implementing the reverse mortgage now.

When is the best time to get a reverse mortgage?

The best time to get a reverse mortgage is generally when you are younger for all the reason I just explained. However, the best time to get a reverse mortgage is when rates are super low and home values are super high. This is because you will be able to borrow the maximum amount funds available based on your age, home value and interest rate.

Where this gets tricky is that you must try and predict the future.

Are the interest rates of today the best you are going to get because interest rates will be higher in the future? Or should you wait because interest rates be lower at some point in the future?

Have home prices peaked? Will home prices go down? If they go down, how long before they come back? If home prices are increasing, how long before they flatten out?

All I know is that my crystal ball has been broken since the day I was born. Sure, I can look at current economic data, historical information, and read articles and listen to the views from economists. But the reality is nobody knows where future interest rates or home prices will be. They could be higher, they could be lower, they could be the same.

What I will say is this, if the numbers for your reverse mortgage work today and the loan accomplishes what you want it to do today, then the answer to the question of “When to get a reverse mortgage?”, is today.