A reverse mortgage can be a great source of income for seniors over 62. It’s essentially a loan that allows you to cash in on your home’s equity. And, unlike traditional loans, it carries the added bonus of zero monthly payments. Though there are plenty of reasons to consider one, there are also some downsides. Before making your decision, consider these three arguments against reverse mortgages.
1 – Inheritance can get…tricky.
One of the main reasons a person might want to avoid a reverse mortgage is if they intend to leave assets for family members after passing. In most cases, the borrower’s home must be sold to pay off the loan. So, no home equals one less asset (and a pretty big one). It’s also important to consider that if the home sells for less than what’s owed, the estate heirs would then become responsible for paying the difference.
Remember: A reverse mortgage accumulates interest, which adds to the overall final payment due!
2 – There can be risks.
In addition to accumulating interest, a reverse mortgage comes with fees and other conditions that can end up costing you way more than you thought. For example, failure to pay homeowner’s insurance or property taxes may be a condition that could cause your loan to become due early.
Another potential risk to consider is your health and where it may take you. For instance, if an unexpected medical issue comes up, you might have to move into assisted living or even a nursing home. Such facilities cost money. And, Medicare or other health insurances don’t usually cover them. Sure, you’ll have the money from your reverse mortgage. But, if the home that you’re borrowing equity from is no longer your primary residence, that might pose some problems.
3 – A reverse mortgage can attract scammers.
While it’s pretty uncommon, reverse mortgages can be an introduction to many scams. The FBI warns potential borrowers to be careful when shopping for a reverse mortgage. Scammers may offer unsuspecting or ill-informed homeowners investment opportunities, foreclosure assistance, or even free homes which are just ways to scam them out of their assets.
Considering a Reverse Mortgage?
A reverse mortgage can be an excellent way for seniors to finance their expenses and live comfortably in their beloved home, but they aren’t for everybody. Financial expert, Bob Carlson of Retirement Watch says:
“we always maintained [that] a reverse mortgage should be a last resort. Before seeking one, consider selling the home (perhaps to someone who will rent it back to you), cash in or sell whole life insurance policies, or tap other assets.”
There are many other ways for seniors to accomplish their financial goals without taking out a loan. As always, consult with a financial advisor and family members before making any decisions!
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