Financial Planning, Retirement Issues


Reverse Mortgages – Lose Your Home

Reverse Mortgages - Lose Your HomeWe have all seen the advertising about reverse mortgages. But what many people do not appreciate is that Reverse Mortgages – Lose Your Home could actually happen. The advertising paints a nice rosy picture of elderly people unlocking the value of their homes, receiving cash every month and living long comfortable lives. The reality is that it could be true, depending on how long you live. This reverse mortgage is actually a loan and must be repaid at some point. If you die after a few years and your heirs sell your home, they must repay this loan. As long as there is sufficient equity in the home, they can repay the loan. But what if there is not enough equity? Or what if you live longer than you expected?

Reverse Mortgages – Lose Your Home

The bottom line is that a reverse mortgage is a loan. If you draw on the equity in your home for many years using this tool, there will be nothing left in terms of equity in your home. Worse if your home’s value actually declines.

Consider the following situation. Let’s assume the home owner is 70 years old and life expectancy is another 10 years. Their home is fully paid off. They want to stay in their home but need money to enable their continued residency. They take out a reverse mortgage for 10 years and enjoy their money doing many of the things that elderly people like to do including paying for health expenses.

After 10 years, the reverse mortgage ends and the loan becomes due. They can make monthly payments of interest plus principle. However if they are on a limited fixed income, chances are they do not have the cash to make these payments. Faced with this situation, the only thing they can do is to sell their homes.

This Reverse Mortgages – Lose Your Home scenario is quite possible for many people. Before you enter into an agreement of this type, take a good look at your finances, your life style, your longevity and what you will do at the end of the term of the reverse mortgage. Many of the ads are misleading. Have a financial adviser review your situation and prepare recommendations. If you are doubtful about the recommendations, get a second opinion!

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