What's the best age to take out a reverse mortgage? Experts weigh in

CBS News

2 hours ago

The average home value in the United States is currently $368,581, a 0.3% increase from the year before, according to the latest Zillow data. But while home values remain high, sticky inflation has been pushing up the costs of just about everything. As a result, retirement costs are also elevated, leading some seniors to consider the benefits of a reverse mortgage.
Through a reverse mortgage, seniors have the option of tapping their home equity in retirement without selling the home or repaying the loan immediately, and there are no monthly payments to factor in. Typically, you must be at least 62 years of age to qualify for a reverse mortgage. But just because you qualify at that age doesn't mean it's the ideal time to take advantage of a reverse mortgage or that it's the right loan.
If you're considering your options, should you get a reverse mortgage? And if so, what's the best age to take out a reverse mortgage, and how do you know it's the right time? To help you decide, we gathered reverse mortgage expert advice from several mortgage and finance experts.
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A reverse mortgage can be a smart way to use your home equity in retirement, for the right candidate, as it allows qualified seniors to turn their available home equity into funds for living expenses and retirement costs. But as with any loan, the accumulated interest and potential fees will have to be paid either after you move out of the home or die. Plus, you're chipping away at your available home equity and running the risk of outliving the loan benefits.
So, if you get a reverse mortgage too early, it can reduce the long-term value and leave limited equity for your heirs. Because of the complexity of this product, it's essential to consider reverse mortgage pros and cons and the right time for borrowing. Here is what experts say to consider.
A reverse mortgage for retirees can be a smart alternative to selling a home in retirement. To get the most benefits out of it, though, it's important to evaluate your current age and the amount of home equity that's accessible to you.
"The older you are, the easier it is to get more money," says Mason Whitehead, branch manager at Churchill Mortgage. "If you're in your mid-sixties, it's going to be really hard to get anywhere near a high loan-to-value. You're going to be capped around a 35% loan-to-value right now."
That's because reverse mortgage lenders factor your life expectancy into the equation. At age 65, with a life expectancy of 85, lenders anticipate your balance could grow for 20 years. Based on this, older borrowers can take advantage of more equity and a higher loan amount. Depending on your needs, consider whether the borrowing amount you might qualify for is enough.
Find out more about how a reverse mortgage loan could benefit you during retirement.
When deciding on what age to tap into home equity in retirement, evaluate your current income needs and financial goals. If you need additional income because of rising costs or limited cash flow, a reverse mortgage may be a good option to consider at your current age, provided that you're within the age bracket required to qualify for one.
"Most retirees are going to be on some sort of fixed income, and the biggest benefit of a reverse mortgage is no more mortgage payments. You still have to pay taxes and insurance on the house every year," says Whitehead.
In this situation, you can free up the cash you put toward your mortgage payments and also receive cash instead. Since it's a loan that you must repay with interest, the payments you receive from a reverse mortgage are tax-free.
Reverse mortgage financial planning also requires borrowers to consider their long-term goals. For example, if you plan on moving close to family in the next few years or want to bequeath your home to your children, you might think twice about a reverse mortgage, no matter what age you are.
That's because when you take out a reverse mortgage, the payments you receive come from your home equity and your loan balance grows as interest accrues. If you use a significant amount of equity, you may have little left for your heirs. If you plan on moving, that will trigger the repayment on the reverse mortgage loan.
You should also consider your other sources of retirement income when determining the best age to take out a reverse mortgage. You may have access to Social Security benefits, a 401(k) and other investments in a brokerage account. If you're financially stretched with limited means, a reverse mortgage can provide another source of cash. A reverse mortgage may also be a good option in other cases as well.
"It can be helpful if they need to delay Social Security, for example, or avoid drawing investments during a downturn," says Nadia Evangelou, senior economist and director of real estate research at the National Association of Realtors. "So late 60s to early 70s, for example, often this is the sweet spot."
Senior homeowners who need to access capital often have to decide whether to stay in their home or sell. When thinking about the best age to take out a reverse mortgage, it's crucial to consider your health status and plans to age in place.
"There's no magic age, but I typically tell clients to consider a reverse mortgage in their early 70s or later, once they're committed to aging in place and have a clearer view of their income needs," says Emilio Cabuto, certified financial planner at Verus Capital Partners.
If you're in good health and can age in place, a reverse mortgage can be a useful tool. It allows you to use your built-in equity as a financial resource and to remain in your home.
"The home is the single largest asset they own and often worth more than their retirement accounts. But that value is locked in as home equity, as we say. So a reverse mortgage unlocks part of that equity and turns it into usable cash while allowing the homeowner to stay in their home," says Evangelou.
If you're in poor health or will eventually need to move to an assisted living facility, that can impact the usefulness of the loan. When you move, you must repay the reverse mortgage. At that point, you'll have much less home equity, so you might not get much back or enough to pay for alternative living arrangements.
There is no single best age to take out a reverse mortgage, and it depends on your unique situation. "I think the best age for a reverse mortgage is when their financial needs, their housing plans, and the market all align. So for some, that's right at 62. For others, it's waiting until their 70s or later," says Evangelou. Before taking out a reverse mortgage at any age, be sure to do your research and understand all costs and fees. Ask about payment options, compare interest rates and check out your other home equity options as well, including a home equity line of credit (HELOC) or home equity loan.