Should An Aging Parent Consider A Reverse Mortgage ?

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The pros and cons of a reverse mortgage. Tread with caution.The United States is seeing an increase in seniors or the elderly taking out reverse mortgages on their paid off homes. It may appear to be an attractive option but proceed with caution when considering obtaining a reverse mortgage.

What Is A Reverse Mortgage ?

In simple terms a reverse mortgage is a lump sum of money borrowed against your paid off house. The reverse mortgage is only to be repaid once the home is sold after death or relocation.

Implications Of A Reverse Mortgage Loan

Mortgage loans can be obtained from a number of different source: the federal government, private loan companies or local/state government. People seeking the loans must be over 62 years of age, you must own your home outright as well as occupy the home.

Payouts from mortgage loans will not affect Medicare insurance or social security, and they are not taxable. Borrowers have carte blanche to do whatever they like with the money with no interference from the provider.

However it’s not always a win win for the senior home owner. One should be cautious before entering into a reverse mortgage and clearly understand the implications of the decision. A few reverse mortgage facts should be considered.

 Challenges of 2009 Financial Crisis

Senior citizens are increasingly finding themselves needing income in the later stages of life. This may be due to a variety of financial reasons or an illness which requires a spouse to fund long term care in or outside of the residence.

After working throughout their lives, saving and paying off their houses, it may become apparent additional funds are needed to supplement a pension or monthly social security. The financial crisis of 2009 severely impacted the long term retirement plans for most and one of the few assets remaining may be a home which is paid off.

Extensive medical bills, long term health care for a debilitating illness or an older home in need of repairs can require immediate attention at a high cost. While a reverse mortgage may grant ease of access to funding, please keep in mind the following when considering the option.

Interest will accrue on a reverse mortgage which adds greatly to the final amount payable. You would still be accountable for any home maintenance, homeowners insurance and taxes. If you fail to maintain the home in a manner agreeable to your loan provider, they could pull back their loan and demand full payment immediately.

The real trouble starts further down the track when elderly people are forced by health issues to move into a retirement facility or pass away. The house sale profits will be funneled first into paying off the reverse mortgage and then to the home owner or heirs. If only a small amount has been borrowed, then it shouldn’t raise too many problems; however if a significant amount of money has been loaned it could affect the quality of health care that can be afforded or the amount heirs receive.

Reverse Mortgage Information – Research All Options

It is very important to research the best possible options available when considering taking out a reverse mortgage, there could be other options available with less risk. Consult with a trusted professional financial advisor before making any financial decisions which are life altering.

The Federal Trade Commission (FTC) has an extensive information page on its’ website which clearly explains the types of reverse mortgages offered. The reverse mortgage facts explained include the financial implications of obtaining a reverse mortgage and the details of each type of reverse mortgage.

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