It’s difficult to turn on the television these days without seeing a slew of commercials for reverse mortgages. They feature past-their-prime celebrities such as Henry Winkler and Fred Thompson, extolling the benefits of “guaranteed tax-free income” for those 62 and over. What they don’t tell you is that reverse mortgages can be dangerous and can put your biggest asset - your home - at risk.
A reverse mortgage really a misnomer. It is really nothing more than a regular mortgage, except that the loan proceeds are paid out to you in installments, rather than all at once. These plans mortgage the existing equity in your home, bleeding it down while it accrues interest on the growing debt. This mortgage does not have to be repaid until you either sell the home or die. Then the loan balance, interest and accrued fees are extracted from the sale proceeds. This type of loan can be beneficial in a very limited set of circumstances, such as allowing a senior to remain in his or her home, rather than having to sell it to pay for medical or other unexpected expenses.
In many circumstances, however, a reverse mortgage can be a risk to your financial security. Here are six dangers you should consider before signing on the bottom line.
1-Complexity :deal
2-Pressure
3-Future Health
4-Eligibility for Government Programs
5-High Fees
6-Spousal Eviction
Reverse mortgages can be an important source of emergency funds for some seniors who would otherwise have to sell their homes to access their equity. There are several dangers to these plans, however, that can put your home at risk and sap your asset base.
It is true that a reverse mortgage can have a downside, but a traditional mortgage also has a downside and even more so for seniors. For example:
Traditional mortgages require income verification to guarantee the repayment of the loan. If a senior is looking for income to live then how can they repay the loan.
A reverse mortgage, on the other hand, is designed to provide steady income to a senior through the equity in the home. Repayment is not an issue.
Traditional mortgages create a large amount of instant debt but also creates a huge income for that year. This could create the potential for sizable tax payments.
A reverse mortgage creates a gradual increase in debt while offsetting income tax difficulties. In the event that the senior dies relatively soon into the mortgage, the heirs will find it much easier to payoff this small amount of debt.
A reverse mortgage is not for everyone, but it can be a very good solution to helping seniors enjoy their golden years in their own home.
I agree with you! I’m currently seeing a lot of advertisements concerning the reverse mortgages. It has helped a number of people in many ways, however, there are some who don’t have idea about how this works or what we need to remember when taking advantage of this transaction. Reverse mortgages are a bit of a niche financial product, as they are only accessible to seniors. The loans can offer some funding for retirement, but the Consumer Financial Protection Bureau is looking into the goods to see if any additional legislation may be warranted. Always be careful when making transactions just to make sure we’ll avoid any problems. Source for this article: Reverse Mortgage