Benefits and Pitfalls of a Reverse Mortgage

Reverse mortgages are a great way for those over age 62 to get some extra money by using the equity in their home. They are able to use this money anyway they see fit, but there are some disadvantages to getting a reverse mortgage. First, you have to keep in mind that banks are out to make money. They are taking a risk by giving you a loan on your home, in turn they will charge you interest on your loan. On top of the loan interest there will be fees you have to pay, such as house appraisal and an organization fee. Usually these fees are added to the loan so you wont have to pay until you leave your home. Second, you are usually required to live at the house that you get the reverse mortgage on. A lot of contracts will have a certain number of days or months that you can live elsewhere before you are expected to pay the loan and interest back. This sounds great if you are planning on living in your home until you pass away, but think if you get sick and have to spend 18 months in a health care facility or with relatives... You may come out and discover that you have lost your house because you weren't living there while you were in the hospital. Third, you must own your home or have very little left to pay on the current mortgage. You have to have enough equity in the house for the banks to take a chance and lend you money on the property. If you do still owe on your house (you do not own it with free and clear title) you may be able to get a reverse mortgage but you will have to use the money you get to pay it off. On that note, you are also required to pay any taxes on your home as well as insurance. The last disadvantage of a reverse mortgage is that you have to keep your home looking good and in repair. If the bank decides to stop buy and review if you are keeping up with your end of the contract and the house is in major disrepair, they could revoke your loan and you would be responsible for paying back the loan and interest. All in all, reverse mortgages are a great way for seniors to get some extra cash that can be used for anything like a vacation or medical expenses. Always keep in mind that you are not getting free money. Banks are in the business of making money. If you have any questions you should talk to a financial advisor or accountant.