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Q: My wife and I recently retired and are finally getting around to some much-needed home renovations. We don’t want to drain our retirement fund to update our house, though. Our friend suggested taking out a reverse mortgage to cover our renovation costs, but we’ve never heard of that type of loan. What is a reverse mortgage, exactly?
A: Managing household finances during retirement can get complicated, especially if homeowners are looking to make a major purchase like renovating an outdated kitchen or building a house addition. Your friend is right that a reverse mortgage can help pay for home renovation costs—as well as a number of other expenses. In fact, reverse mortgages are designed with retirees and older homeowners in mind, giving them an opportunity to use their accumulated home equity on day-to-day costs or larger purchases.
What is a reverse mortgage? It’s a specialized type of home loan in which the lender makes payments to the borrower using home equity as the basis for the loan amount. Taking out a reverse mortgage does come with some caveats, though, and it may not be the best financial option for every household. To determine if a reverse mortgage is right for them, homeowners first need to understand a few reverse mortgage facts, including lending limits, eligibility requirements, and what kinds of financing options are available with this type of loan.
