Reverse mortgages are surprisingly unpopular considering that they let you spend the wealth locked up in your home without having to sell, protect you from a decline in the home’s value, and even (if you so choose) pay you monthly checks for as long as you live, like Social Security. Fewer than 1% of eligible homeowners have a reverse mortgage, according to a Brookings Institution report.
The word “reverse,” which conjures images of retreat and defeat, might be the problem. Or maybe it’s “mortgage,” which is no one’s favorite financial product. There seems to be an impression that taking out a reverse mortgage is an act of desperation by people who have no choice but to crack open and spend their nest egg of housing wealth.
That’s unfortunate because a reverse mortgage can be a smart choice for a wide range of people aged 62 and older, including ones who are far from desperate. Many people who are well set for retirement have most of their wealth tied up in tax-advantaged savings plans such as 401(k)s. Extracting some money from the house they live in without having to sell it can be a good way to raise cash for big expenses—say, to help pay for at-home health care or their grandchildren’s education.