NEW YORK (TheStreet) -- Reverse mortgages are a viable option for retirees who need extra money in their golden years, but is one right for you? Experts weigh in on the top seven questions you should ask before taking out a reverse mortgage.
1. Who are reverse mortgages right for?
If you're 62 or older and the majority of your wealth is tied up in your home, a reverse mortgage may be the right option for you, says Greg McBride, Bankrate.com senior financial analyst.
"When you don't have the luxury of having a paycheck come in, the single biggest worry among retirees is whether they have enough money. You're going to need money to see the grandkids, fix up the house and travel. Accessing the equity in your home is a great way to do all that."
Reverse mortgages can give retirees "breathing room" in what may otherwise be a very tight household budget, McBride says. Although many retirees may have had visions of giving their home to their children when they die, the money in the home may be better put to use now.
"I can tell you now as someone who has two retired parents, I don't want their house -- I want them to be comfortable and not worry about money," McBride says.
2. Who are reverse mortgages wrong for?
If the money you'd get from a reverse mortgage still wouldn't be enough to ensure you can pay your bills every month, it's not right for you, says Linda Sands, branch manager for Luxury Mortgage, a mortgage bank in Stamford, Conn.
"If you take out a reverse mortgage and use it to pay off your existing mortgage so you don't have that payment, that's great. But if you still can't pay your monthly utilities or car payment, it just doesn't make sense," she says.
For many retirees, their home is their biggest asset. The reverse mortgage "uses up" that asset, and makes either selling the home or passing the home down to heirs more difficult, if not impossible, says Ben Simiskey, CPA and CEO of PLS Advisory, a wealth management firm in Houston.
"People who need money may think of the reverse mortgage as a panacea, and it's not. It makes sense for some people, but many others have better options or future plans for their home," he says.
There's no one-size-fits-all description for bad reverse-mortgage candidates, so a counseling session from an impartial third party is mandated for anyone considering this type of mortgage.
3. Do I have to take the counseling session?
Yes. The counseling session is mandated, and you'll get a certificate of attendance when you complete the 60- to 90-minute session. The sessions are taught by HUD-approved third-party counselors who don't have ties to a lending institution or broker.
"We are not even allowed to take a full application before a borrower has had a counseling session," Sands says. "During the sessions, the counselor will make sure the person understands the full impact of what a reverse mortgage is and they'll find out if it's going to work for them financially."
Bring one of your children along with you if you think you'll have any doubt as to what the counselor may be saying, Sands says. It can get complicated.
4. What should I bring to the counseling session?
Do your homework before your session and come prepared with an extensive list of questions, says Peter Bell, president and CEO of the National Reverse Mortgage Lenders Association.
"Take the counseling session seriously. Ask questions, and be candid with them. Tell them about your living situation, your finances and expectations," Bell says.
Come prepared with documents that reflect your income, your expenses, your debt and the current value of your home.
"They won't need to see tax returns, but they will need to know your financial status," Sands says. "Also, keep in mind that they aren't able to tell you yea or nay on approving your application -- only the lender can do that. The counselor is just there to lay out all the facts."
5. How long do I plan to live in the house?
This may be the biggest question to ask yourself if you're considering a reverse mortgage, Sands says.
"If you're only going to be living there another three years, why are you spending the money on closing costs and other fees to do this? Does it make sense to get a reverse mortgage, or to just wait three years and sell the home?" she asks.
Figure out if you can afford to pay property taxes and maintain the property, Bell says. For example, if you're living in a four-bedroom home, can you realistically afford heating and cooling costs for the years to come? What about a new roof? It's all part of the equation.
"Some people will say, 'Yes, I'll be here forever. There is no way I'm leaving my home,' but sometimes that isn't necessarily a choice they can afford," he says.
6. What is the cost and what will the payout look like?
Reverse mortgages aren't free. There are closing costs associated just as there are with a traditional forward mortgage, Simiskey says.
Exactly how much you pay at closing will vary according to the amount of equity you have in the home and the type of reverse mortgage you choose. You can choose to take a lump sum, get monthly payments like an annuity or a pension or choose to get a line of credit.
"It all depends," Simiskey says. "They're going to look at everything you bring to the table and the kind of reverse mortgage you want."
Once you figure out one that's right for you, get a couple of different proposals from lenders. You'll have a choice between fixed rate or variable rate.
"It's a competitive market, and you'll see different closing cost options and different rates out there just like you would with a traditional forward mortgage," he says. "By all means shop around."
7. Where can I do some more research on reverse mortgages?
No matter where you turn for more information, do plenty of research, Bell says. At ReverseMortgage.org, consumers can find a comprehensive battery of non-sales-oriented information.
"ReverseMortgage.org provides a roadmap that explains the entire process from beginning to end," he says.
If you're looking to find a HUD-approved counselor or lender, check out HUD.gov, Simiskey suggests.
"Check out the site, and when you find a counselor you want to use, make sure the session is free or very low cost," he says. "An expensive counseling session should raise some serious red flags."