Reverse mortgage can be to the advantage of senior homeowners who wish to remain in their residence, but are having difficulty keeping up with the mortgage payments, or have no other options of funding for unexpected expenses. Reverse mortgages are a vehicle whose use should be rare at best. Reverse mortgage is an interest-bearing loan secured by the equity in your home. The Reverse mortgage allows one to convert their home equity to cash to use for whatever purpose the borrower wishes. Reverse mortgages, unlike other home loans do not require the borrower to make ANY INTEREST OR PRINCIPAL PAYMENTS THROUGHOUT THE LIFE OF THE LOAN. From that "benefits" alone one can understand why unscrupulous financial advisors are salivating. The interest is added to the principal which is called rising debt. Unless the borrower opts for a fixed term the loan becomes due when the borrower dies, sells the home, or is out of the home for at least 12 months (nursing home or assisted living facility). When any of those events come to pass, you or your heirs must repay the loan, including all compounded interest in full. Usually what occurs is the house is sold, and the proceeds are used to repay the loan.
Like traditional mortgages and home loans interest will be charged. However, in the case of reverse mortgages the interest is much higher. In addition, the fees and costs associated with Reverse mortgages are often higher as well, sometimes as high as 8% of the total loan amount (think commission). Another point is the fact that you are still the owner of the home and therefore are responsible for the property taxes, insurance and maintenance. If you are unable to meet these obligations, the lender will have the right to foreclose, leaving you with no place to live and no home equity to draw upon. If there is ever a point in time that you wish to downsize or move to assisted living facility for reasons other than costs, your loan will become due. With all the compounding interest, you might be quite surprised with how much money you owe, which can restrict options.
The original intent regarding the utilization of Reverse mortgages was for aging, low-income homeowners to be able to keep their home verse mortgages es by providing a source of additional income to meet expenses. Crooked advisors are coming to the realization that retiring baby-boomers are sitting on immense pools of home equity capital that they are more than willing to drill for. Reverse mortgages are being marketed as way to enhance unaffordable and unrealistic retirement lifestyles. Home equity is an important building block of ones financial plan. Reverse mortgage can be a fantastic tool for helping seniors faced with losing their homes. For everybody else, it is the fast track to depleting the blood, sweat and tears you put into building home equity.