Reverse mortgages are a way for seniors (those older 62 years of age) to use the equity in their home to generate extra income. Many seniors are on a fixed income and with inflation have discovered that their savings were insufficient to support their lifestyle in their later years. A reverse mortgage enables these seniors to bridge the gap. While this sounds like a wonderful idea, there are inherent dangers in reverse mortgages that should be addressed before signing the dotted line. Some of these reverse mortgage pitfalls will be addressed below.
Reverse Mortgage Holders should always be aware of exactly how much money they should expect every month. Because these mortgages are paid in reverse all fees, insurance, etc will be taken out of the monthly amount that is to be paid to the mortgage holder. The net amount paid can be significantly less than what was calculated. It is important that seniors determine that the amount they will receive will meet their needs before entering into a mortgage.
The next factor that should be considered before taking out a reverse mortgage is a persons health and level of independence. Reverse Mortgage are only valid if the home is serving as the primary residence. If for any reason the senior is no longer using the home as a primary residence, such as an extended hospital stay, moving to a nursing home or family members home, etc, the bank will come for their money. The home will be sold and any money beyond what is required to satisfy the note will be paid to the home owner. If the amount owed is greater than the value of the home the home will become the banks property.
Another danger of reverse mortgages that most people do not consider is that the money can be sent for anything. This amount of freedom can be dangerous as home owners can fritter away their resources and not have any equity left in their home in the event of a medical emergency.
While there are dangers to a reverse mortgage they are still a great means of allowing seniors to enjoy their twilight years, but it is best to go into any situation with a firm understanding of the reverse mortgage pros and cons. By doing so, the senior can be sure of their obligations to the bank and what they can and cannot expect.