Posted by Mary P. Deshong- Kinkelaar
You may have seen the commercials on television with a famous actor suggesting senior citizens get a reverse mortgage to help with unexpected bills. While a reverse mortgage may be a good option for some people, it’s not for everyone. What are the pros and cons of reverse mortgages?
Pros
Seniors 62 years of age and older can apply for a reverse mortgage if they own their home. The loan uses the equity of the home and allows homeowners to borrow that money to pay medical bills, pay off debt, or any number of other reasons. Some may see it as a way to supplement what they are earning through Social Security or pensions they may receive.
Rather than having to pay monthly payments as in the case of a traditional home equity loan, the reverse mortgage does not require you to pay back the loan while you are alive unless you move. Reverse mortgages also do not require a credit check. As long as the home you’re using as collateral for the reverse mortgage is your primary residence, you should qualify.
Reverse mortgages are tax free and the funds can be used for whatever you choose. As long as you have funds in your equity line of credit, that money is available to you. You and your heirs can never owe more than the property is worth, so if the value of the home decreases you and your family are covered.
Cons
Many people like the idea of reverse mortgages because, according to the advertisements “your house pays you” instead of you having to pay for the house. Unfortunately, reverse mortgages can be very expensive. Reverse mortgages require all the fees to be added to the loan balance; depending upon how much your home is worth that could be quite a bit.
For senior homeowners needing to borrow a smaller amount or for only a short time, the fees associated with a reverse mortgage can make it a bad choice. There are other options you may want to consider instead. Talk with your financial planner to see if they have suggestions that will enable you to get the money you need without having to pay such expensive fees.
Be aware not all property tpes qualify for Reverse Mortgages. While this is rare these days, we do see cases from time to time where certain dwellings are excluded. So do your homework and make sure you residence qualifies before you start planning the use of the proceeds.
Obtaining a reverse mortgage can also reduce the amount you’ll leave to your family as an inheritance. The major reason for this is that the loan must be paid in full from the proceeds of the sale of your home, which will leave less for the estate. While inheritance issues are secondary to ensuring you have enough to live on, it is something you should consider.
Some seniors who obtain reverse mortgages live longer than the money they receive through the reverse mortgage. However, with the expressed concerns about Social Security solvency they may feel they don’t have a choice. Getting a reverse mortgage sooner rather than later can also reduce the amount they can obtain.
Be careful that your total loan receipt is not more than is allowable by Social Security. If you borrow more than you’re allowed, it could impact your Social Security benefits.
There are many companies offering mortgages and they can be a good choice for some. However, look over the elements of reverse mortgages and make the best decision for your own circumstances. You may also want to discuss the option with your family.
