Reverse Mortgages: Are They A Good Idea?
By now, most of the people across the country have seen some type of advertisement touting a reverse mortgage as the solution to all of their financial ills. What could be better than taking out a loan that provides you with money that does not necessarily have to be paid back within your lifetime? Although obtaining a reverse mortgage may seem like a great idea, especially if you are strapped for cash, there are a few things that you should know about reverse mortgages that can help you determine whether applying for a reverse mortgage is really the best financial move for you to make.
Intended For Seniors Only
One of the main requirements for obtaining a reverse mortgage is being a senior citizen, meaning that the person is age 62 or older. This disqualifies many of the people that may actually need the money obtained by applying for a reverse mortgage and ensures that the programs are limited to a select number of homeowners that have accumulated significant equity in their homes. The reverse mortgages are marketed as a way for the senior to obtain the money that they need to live the lifestyle that they desire without having to tap into their retirement savings or social security payments.
Cashing Out Equity
A reverse mortgage allows the senior to cash in some of the equity that they have accumulated in their home and receive a line of credit or a lump sum of cash in return. There are no monthly payments required on this loan and there are no restrictions on what the money can be used for. The entire loan becomes due once the person decides to move from the home or upon their death.
Numerous Fees and Complicated Terms
One of the biggest problems that many seniors that have taken out a reverse mortgage are facing is that the fees and interest charges on the loan can rise rapidly, quickly skyrocketing the amount due on the loan past the amount that the home is worth. This leaves the senior with no equity in the home and significant losses if they are forced to sell their home due to financial problems or health issues. These fees and interest charges can be spelled out in agreements with complicated terms and conditions that can be difficult for a person to understand without someone that they trust and that understands the terms used in the contract to explain it to them.
Reverse mortgages can be a financial option for some people that do not have any other means to obtain the money that they need, but they should only be used as a last resort. It may be more beneficial to consider some other options first, such as taking out a traditional loan with a fixed interest rate or finding savings by scaling back your lifestyle, before deciding that taking out a reverse mortgage is the best course of action.
- Six Benefits of Taking a Reverse Mortgage in Canada While Tom has pointed out that reverse mortgages are controversial, they are becoming increasingly popular in Canada. It's a plan that gives older Canadians greater financial security. A reverse mortgage is a type of home loan that allows homeowners to convert a part of the equity in their home into......
- Home Equity: Not Loans, We're Talking Shareholders Why is it that so many good ideas come to us as we're drinking? Thankfully for me it's because I've got great friends with great ideas. They have bad ones too. But anyway, I was talking to one of my friends at a bar and we got to talking......
- A look at reverse mortgages Photo by: scjody While reading the local newspaper a few weeks back I came across a short blurb in the financial section about reverse mortgages and their recent surge in popularity with older Americans. The New York Times reported that there's now a $20-billion-a-year industry in reverse mortgages, with......
- Fools Born to Buy Debt Allow Wall Street Exports to Boom With the fall of the stock market, the collapse of the economy became clear. The real driving force behind it, however, was the failure and dropping confidence in the largest bond market of the world. Known as structured finance, it has led to a crisis which rivals the Great Depression,......
- How Much Money Should You Leave Your Kids When You Die? From time to time, when reading the advice columns, I read articles about parents who are concerned that they are spending too freely in retirement and will have little money to leave to their children when they die. Â Sometimes, there are even letters from grown children who are concerned that......
It seems this is only if its the last possible option. It is not recommended and shouldn’t be something to think about unless you absolutely have to. I also have a blog post offering more information if interested http://blog.budgetpulse.com/2009/07/22/income-after-retirement/.