|Reverse mortgages are financial tools specifically designed to help seniors tap their home equity for retirement income. But they have two big drawbacks: 1) fees and expenses in relation to loan amounts are very high and, 2) they are aged-based loans meaning that the younger the borrower, the smaller the loan amount available.
You need to be at least 62 to qualify for a reverse mortgage. But, while there are no hard and fast rules, the “best” age for reverse mortgage borrowers is about 75. This is an age at which you can qualify for a decent loan amount and still have enough years to left smooth out the impact of high origination fees.
One option for retirees is to consider using a HELOC as a “bridge” to a reverse mortgage. For example, a 70-year old who owns his home outright could take out a HELOC requiring interest-only payments for 5 years. He then draws $500 per month for living expenses plus enough to pay the loan interest. Here’s what such a loan might look like after five years (assuming 7% average interest):