Forbes: Seniors should be mindful of the ‘realities’ of reverse mortgages


A reverse mortgage may be suitable for some retirees looking for an out-of-the-box financial solution, but seniors have many potential caveats to bear in mind if they are seriously considering taking out a reverse mortgage. This is stated in a column published this week in Forbes Advisor.

“A reverse mortgage can seem tempting if you’re retired and struggling with the costs of a fixed income. However, reverse mortgages may turn out to be less attractive upon closer inspection, ”write commentators Kia Tris and Rachel Witkowski. “Not only are there a number of reverse mortgage fraud cases, but lenders can also charge high fees and close deals, and borrowers have to pay for mortgage insurance. Reverse mortgages can also have variable interest rates, so your overall spending could rise in the future. ”

This does not mean that a reverse mortgage does not offer potential benefits to a write-off borrower, the couple writes. Although the closing costs and fees and mortgage insurance premiums are described as “high” and “expensive,” the loan is described as potentially a good match for someone who is concerned about his or her ability to cover living expenses or meet other outstanding financial obligations.

Among the potential benefits, the duo writes that a homeowner can use a reverse mortgage as an alternative to downsizing if he or she seeks to age on the spot; using borrowed funds to pay off existing traditional mortgages and free up additional cash for living expenses; and can completely avoid monthly mortgage payments if the borrower is aware of the homeowner’s loan terms, taxes, and insurance (among other obligations such as HOA fees, if applicable).

Among the potentially negative consequences, “paid” describes the prevalence of reverse mortgage “scams” ​​that “prey on older people who need money to cover their living expenses,” the column says. Also negative is the negative amortization of the loan, in which the loan balance grows over time, in contrast to the traditional mortgage loan, in which the balance decreases over time (because the borrower makes payments in this way).

Other potential disadvantages include the prospect of less inheritance being passed on to the heir; claims of the lender for the maintenance of the house to protect the future resale value of the property; and how failure to comply with the terms of a reverse mortgage can lead to default or foreclosure (although this is also true for traditional mortgages).

A reverse mortgage should not be considered if a senior plans to relocate neat for several years; the house is intended for inheritance; if other people live in the house besides the borrower (s); or the costs cannot be covered, the column says.

Read article at Forbes Advisor.

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