Finding the right time for a reverse mortgage
For many seniors, their home is their most valuable asset, holding significant equity. Accessing this equity through a reverse mortgage can provide much-needed income during retirement, but the decision is complex [2, 3]. The minimum age for the most common type, a Home Equity Conversion Mortgage (HECM), is 62 [2, 5]. However, some private or proprietary reverse mortgages offer a lower minimum age, sometimes as young as 55 [5]. Understanding the implications of getting a reverse mortgage at different life stages is crucial for making an informed decision that aligns with your long-term financial goals.
The impact of age on loan proceeds
One of the most significant factors in a reverse mortgage is how your age affects the amount of money you can borrow [2]. Lenders use actuarial tables to determine a principal limit, which is the maximum amount you can receive [2]. Generally, the older you are, the more you can borrow because lenders assume an older borrower will have the loan for a shorter period, allowing them to offer a higher percentage of your home's equity upfront [2]. Younger borrowers (62-65) typically receive less due to a lower loan-to-value (LTV) ratio [2]. This difference in potential loan amounts is a key consideration when deciding when to apply [2].
Comparing early vs. later reverse mortgages
Let's compare potential outcomes.
| Feature | Getting a reverse mortgage at 62 | Waiting until your 70s |
|---|---|---|
| Access to Funds | Access cash early in retirement to cover expenses, pay off a remaining mortgage, or fund a retirement trip. [2] | Access a significantly larger lump sum or line of credit due to a higher principal limit factor (PLF). [2] |
| Loan Costs | Closing costs and mortgage insurance premiums (MIP) are paid upfront. If you move sooner than expected, these costs might outweigh the benefits. [4] | The same fees apply, but the larger loan amount and longer expected tenure in the home can make the costs a smaller relative percentage of the total benefit. [4] |
| Line of Credit Growth | For those who choose a line of credit option, the credit line grows over time, potentially at a rate of 4-6% annually on the unused portion, providing a growing financial safety net. [2] | You might access the line of credit later, but its initial amount is higher. You lose out on years of compounding growth for the unused portion. [2] |
| Risk of Early Repayment | Higher risk of needing to move due to health or other reasons, which would trigger early repayment of the loan. [4] | Lower risk of an unexpected move, as you're likely more certain of your long-term living plans. [4] |
| Equity Impact on Heirs | The loan balance grows over a longer period, reducing the remaining home equity for your heirs. [4] | With a shorter loan period, the final balance is likely lower relative to the home’s appreciation, potentially leaving more for your heirs. [4] |
Other critical factors to consider
Age is just one piece of the puzzle [2]. Before moving forward, consider these additional factors:
- Your health and plans to age in place. A reverse mortgage requires you to live in the home as your primary residence. If you anticipate needing to move into assisted living in the near future, the loan will become due [4].
- Your other retirement income sources. Does your other income provide enough? A reverse mortgage can supplement income, especially if delaying Social Security is a goal or you need to avoid withdrawing from investments during a market downturn [3].
- Impact on heirs. A reverse mortgage reduces your home's equity over time [4]. While HECM loans are non-recourse, it will likely reduce the value of the inheritance they receive [4]. If passing your home down is a priority, a reverse mortgage may not be the right choice [4].
- Effect on government benefits. If you receive or plan to receive needs-based benefits like Medicaid or SSI, a lump sum or monthly payments from a reverse mortgage could impact your eligibility [4]. Consult with a financial advisor [4]. For more details on reverse mortgage rules and borrower protections, refer to the Consumer Financial Protection Bureau's guide on reverse mortgages [1].
Weighing your financial needs against the costs
Reverse mortgages come with costs, including upfront fees like origination fees, closing costs, and mortgage insurance premiums [4]. These costs are often added to the loan balance, meaning you'll pay interest on them [4]. For someone taking out a reverse mortgage for a small amount or for a short period, these fees can quickly erode the loan's benefits [4]. However, for a senior who owns their home outright and needs a secure source of income to age in place comfortably, the long-term benefits can outweigh the costs [4]. The best approach is to carefully evaluate your financial needs, compare interest rates and fees, and consider how a reverse mortgage fits into your overall retirement plan [4].
Conclusion
There is no perfect age for everyone to get a reverse mortgage [2]. For some, starting at 62 provides an immediate cash infusion [2]. For others, waiting until their late 60s or 70s to access a higher percentage of their home's equity is more strategic [2]. Ultimately, the decision should be based on a thorough assessment of your personal finances, future housing plans, and a complete understanding of the pros and cons [2, 4]. Seeking counseling from a HUD-approved agency is a required and highly recommended step [4].
