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Is a Reverse Mortgage the Way to Go?

Reverse-mortgage-appraisalHomeowners age 62 and older may be tempted by the offers for reverse mortgages as a solution to the financial stresses.  The celebrity spokespeople seem so warm and caring and it seems like a simple solution to an overwhelming problem.  While reverse mortgage might be a reasonable solution for some seniors, for many it is a bad financial decision, for a number of reasons.

Every year, the Better Business Bureau receives a lot of complaints about reverse mortgages.  As these complaints show, there are many problems and issues with reverse mortgages, and they also illustrate many seniors who turn to reverse mortgages as a solution do not actually understand the process or the long term results.

A recent article in The (Appleton WI) Post Crescent, titled “Be cautious before taking on reverse mortgage,” says that some consumers don't know that a reverse mortgage is actually a loan that leverages their home’s equity. It's actually one of the most expensive forms of credit a person can get, with very high origination fees, high interest charges, and insurance premiums topping those of most other types of loans. Typically, a reverse mortgage origination fee can be up to $6,000, and the initial premium for federal insurance is set at 2% of the home’s value.

Repayment of a reverse mortgage loan isn't required until the borrower dies or moves out of the home, but this is where problems arise.  If the borrower moves into a nursing home or assisted living facility and leaves behind a non-borrowing spouse, child, or grandchild, they’ll also need to move out of the house.

The article explains that there are seniors who apply for a reverse mortgage because of financial difficulties, which can include property taxes or insurance payments. Here’s part of the fine print:  property taxes, insurance, upkeep, and maintenance are still the borrower's responsibility. If the borrower fails to do any of these, he or she will be in default and the lender can foreclose.

When is a reverse mortgage a good idea?

The Number One benefit of a reverse mortgage is that a senior can remain in the home while at the same time receiving a steady cash flow. The best reverse mortgage candidate is an individual age 62 or older who lives alone and has significant equity in the home (or doesn’t have a mortgage).  Also, this person isn't planning on leaving the home to their heirs and is healthy enough to stay in the home for a long time without going into an assisted living facility.

The article says that if you're thinking about a reverse mortgage, forget about those celebrity spokespeople on TV! Talk with an experienced elder law attorney before signing anything.

Lastly, watch out for scammers who want to take advantage of seniors. That includes anybody with too-good-to-be-true interest rates, real estate deals, or investment ideas. Talk with a qualified elder law attorney. It’s critical to do so first.

Reference: The (Appleton WI) Post Crescent (June 20, 2015) “Be cautious before taking on reverse mortgage.”

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