For seniors short on cash, Reverse Mortgages have become a common consideration. It seems like a great way to tap into their home equity to create cash for use in retirement years. While the benefit is obvious, disadvantages should also be considered when pursuing a Reverse Mortgage.
To give you an overview, Reverse Mortgages are similar to Home Equity Loans. However, to obtain a Reverse Mortgage, you don’t need great credit or monthly income. You simply need to be over the age of 62 and own a home that you have mostly paid off. You can choose to receive a line of credit, recurring income payments or a lump sum. Many retirees think this sounds like a great idea because you don’t need to pay off the loan until you either move out of the home or pass away, and you are able to obtain income to supplement your retirement years.
So what are the disadvantages? First, if you have children or heirs that you intend to leave your home to after you pass away, a Reverse Mortgage is not ideal. When you pass away, your heirs will have to use your estate to pay off the loan, which will reduce their inheritance, or they will be forced to sell your home in order to pay off the loan.
It is also important to remember that if you can no longer live in the home, the loan becomes due in full. Though you may intend to live in the home forever, if unforeseen events require you to enter a long-term care facility, the loan must be paid if you are unable to return to your home for more than a year.
Another downside is that obtaining a Reverse Mortgage is expensive. Due to the minimal requirements for obtaining the Reverse Mortgage loan, the person obtaining the loan is going to have to pay much higher loan fees and higher interest on the loan.
Just remember to consult with an Elder Law Attorney or a Senior Real Estate Specialist prior to obtaining a Reverse Mortgage on your home to see if it really is the best option for you and your retirement goals. You may do so by contacting AlerStallings toll free at (877) 912-3464.