What is not being said about reverse mortgages?

There are underlying issues with reverse mortgages that should be considered.

A Reverse mortgages allows you to convert part of the equity built up in your home into cash without having to pay additional bills or sell your home. With a reverse mortgage, the lender pays you money, and usually you do not have to pay it back as long as you live in your house. Let’s repeat that… as long as you live in your house.

Reverse mortgages seem like a great thing when people get older and do not want to make house payments anymore. But how do they really work? Are there hidden issues involved? What if I want to leave my home to my heirs?

A Reverse Mortgage should only be considered as a last resort and only if you are 62 or older and looking for money to help pay for medical expenses, aid in supplementing your retirement income, help in paying off your current mortgage, or looking to finance a home improvement project.

A Reverse Mortgage is repaid when one of three things happen; 1. You die, 2. You sell your home, or 3. Your home is no longer your primary residence. For example, if you are elderly and have to move into a care home, your home is no longer your primary residence so you would have to repay your reverse mortgage.

What is the amount that you must repay? The loan balance of a reverse mortgage is the amount paid to you in cash, plus interest and fees added each month. Essentially, your debt is increasing each month that loan funds are paid to you and interest is accruing while the reverse mortgage is using up some or all of the available equity in your home.

Below are some common concerns regarding reverse mortgages:

  • Property taxes and insurance – If you fail to pay property taxes or homeowners insurance, or fail to maintain the property, the loan becomes due and payable or you can be foreclosed on.
  • If you move out or have to go into a nursing home, the loan becomes due and payable.
  • If the reverse mortgage does not include your spouse as a co-borrower, your spouse will have to move or repay the loan if you die before them.
  • If you sell your home, the loan becomes due and payable.
  • A reverse mortgage is not a good choice if you want to leave the home to your heirs. Upon your death the loan becomes due and payable leaving your heirs a choice of either paying the loan to keep the home or selling the home.

For additional information regarding reverse mortgages please refer to http://www.consumer.ftc.gov.

Michigan State University Extension offers financial management and home ownership education classes. For more information of classes in your area, visit MIMoneyHealth.


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