In todays economy, many older Americans are looking for ways to stretch their fixed-incomes and live a comfortable life. One option that many companies are currently promoting is a reverse mortgage. It is touted as a way for someone to access the equity in their home without being forced to sell the house and move. Though it is often promoted as a great option for people in all situations, however, it is very important to understand the pros and cons reverse mortgage.
A reverse mortgage is similar to a home equity loan; however, instead of receiving a lump sum at the inception of the loan, payments are paid to the homeowner over a defined period and there are no payments due until the homeowner no longer uses the home as a principal residence or does not meet other qualifications of the loan. At this point the entire amount plus applicable interest will be due to the lender. This is a great way to have a steady income without worrying about monthly loan payments.
The greatest concern of those considering a reserve mortgage is the inability to leave their estate to their heirs. Fortunately, in the event of one’s death, the estate will pay the loan balance and the remaining proceeds will go to the heirs. If the estate has enough cash to cover the loan without liquidating assets, the house does not need to be sold. In a down housing market, waiting to sell a house is a good idea; but if the loan cannot be paid with other assets, the home must immediately be sold. This means that heirs may receive less inheritance than they would in a more favorable market.
These and other considerations must be weighed before entering into this type of financing arrangement.