Reverse Mortgages Can Be Risky For Some Seniors

By: Jody Smith

An article on Forbes.com cautioned seniors between the ages of 62 and 64 concerning reverse mortgages.Stephanie Moulton, assistant public policy professor at Ohio State University, used to be a reverse mortgage counselor for AARP. She advised that a reverse mortgage can be risky for seniors that are this young if they have no other assets for retirement, and if they're spending down their home's equity.

You must be at least 62 years of age to qualify for a reverse mortgage. The home in question must be your primary residence, and you must have some home equity.

To be a good deal, a reverse mortgage allows seniors to use their home's equity and still be able to live there. Essentially, money is lent and the senior will continue to pay their house insurance, property taxes and general upkeep on the place. Over time, the amount owed continues to grow. Eventually the senior will either die or move out. The house would then be sold.

This scenario can runs into problems. If at some point the senior can't pay their real estate taxes, or must move for some reason, they have little or no equity left in their home because of the fees and the interest that has accumulated. Reverse mortgages can be dangerous if they are taken by people who are looking for quick cash, who are having financial problems. It may seem like a good short-term solution but in the long run, they may find themselves with no resources for their retirement.

There are many factors that will be considered when the amount of your loan is determined -- your age, your home's appraised value, interest rates, and how payment is taken. Reverse mortgages are quite complex, to the point that Congress requires people to get counseling before going after this type of mortgage.

Reverse mortgages also involve service fees every month, real estate appraisal, an origination fee, recording fees, a survey, mortgage insurance. and title insurance. Add the interest on to all of this and a reverse mortgage can become a very expensive proposition. If you become unable to pay your homeowners insurance and property taxes, you could be in default, and then you have a world of trouble.

The way a reverse mortgage works best is if you have no plans on moving out. If you decide to move though things will get dicey. If you move out for longer than a year, you will need to pay off the loan balance. Another drawback to a reverse mortgage is that you won't be able to count on leaving your home to your children because the mortgage company is going to want their share after your death.

Is a reverse mortgage right for you? That depends on so many factors. If you are considering a reverse mortgage, be sure to be thoroughly informed on all advantages and disadvantages before you make your decision.

Jody Smith is a freelance writer for EmpowHER.com.

Sources:

A Troubling Housing Misstep By Boomers

http://www.forbes.com/sites/ashleaebeling/2012/03/19/a-troubling-housing-misstep-by-boomers

Should You Consider a Reverse Mortgage?

http://www.forbes.com/sites/financialfinesse/2011/10/19/should-you-consider-a-reverse-mortgage

Related Links:

Osteoporosis: Dr. Andrew Weil Advises Baby Boomers On Bone Density

http://www.empowher.com/osteoporosis/content/osteoporosis-dr-andrew-weil-advises-baby-boomers-bone-density

Baby Boomers--Generation Alzheimer's

http://www.empowher.com/caregiving/content/baby-boomers-generation-alzheimers

Baby Boomers are Setting a Trend: Healthy Eating

http://www.empowher.com/active-adult/content/baby-boomers-are-setting-trend-healthy-eating

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