Is Reverse Mortgage Right For You?
Before you jump right in after seeing the attractive TV commercials, you need to consider a few facts about reverse mortgage.
Like so many people facing retirement, you may find yourself wondering about the best course of action to take when it comes to your finances. You may be considering how best to use your money and assets. In fact, your home may be the largest asset that you have right now, and it may be something that you have long ago paid in full.
If you are considering obtaining a reverse mortgage, you need to seriously weigh the pros and cons of such a decision.
Why It’s a Good Idea
- You are not required to make monthly payments.
- There is no restriction as to how you can use the proceeds of the mortgage.
- You still own the property as long as it remains your primary residence.
- If or when you decide to sell your home, the mortgage gets paid off. Any additional equity from the sale belongs to you.
- You can never owe more than the value of your property.
Reverse Mortgage Risks
While the positive points on reverse mortgages listed above make it sound like a great deal indeed, there are also some risks and dangers involved.
- You might need to move to an assisted living facility in the future, in which case, the mortgage becomes due. Think about how much money you will need to pay off the debt and pay for the cost of the assisted living home besides. This doesn’t only affect you; your non-borrowing family members living with you will also need to move out when you do. This can potentially leave you and your family homeless.
- Should a time come when you cannot pay property taxes and home insurance bills and cannot fund for the upkeep of the home, you will be considered in default and the lender can foreclose.
- If the borrowing elder dies, the heirs must pay the entire principal, as well as the accumulated interest and service fees in full before they can take ownership of the home lawfully. If the heirs are unable to do so, the home will fall into foreclosure leaving the heirs with no inheritance.
- The reverse mortgage payments may affect the elder’s eligibility for government benefits such as Medicaid. In order to become eligible for Medicaid, the individual must have no more than $2,000 in countable assets ($3,000 for couples), such as a car or home or $623 in countable monthly income. Since a reverse mortgage is not considered an income, that eligibility requirement should not be affected. However, if you were to receive a lump sum of $6,500 from your reverse mortgage loan and consume only $4,000 in the same month wherein you received that amount, then you will no longer be qualified to receive Medicaid since the remaining $2,500 would become an asset after 30 days.
It is highly recommended that you get professional advice from a competent financial planner and elder law attorney before you decide on a particular course of action. They might be able to suggest alternative methods for financing. Reverse mortgage financing should be your last resort.