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.
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