Are There Any Risks Of Taking Out A Reverse Mortgage?
Understand the risks and benefits before investing in a reverse mortgage.
Homeowners over the age of 62 have recently been encouraged to take out a reverse mortgage. This mortgage plan allows senior homeowners to receive a monthly loan payment as long as they continue to live in the house. Some financial advisors argue that this makes good sense because the loan payments do n ot have to be paid back during the senior’s lifetime and can therefore supplement Social Security payments.
A REVERSE MORTGAGE REQUIRES YOU TO STAY PUT
The only condition of the reverse mortgage is that the senior homeowner cannot move. If she does, the loan immediately becomes payable. Many senior citizens enter into such an agreement because they have no plans to move. However, this is risky. Even the healthiest senior may find his mental and physical abilities failing towards the end of his life and have to move into an assisted living or other care facility. These facilities are expensive and not always covered by Medicare. The senior citizen’s family may therefore be burdened with two large debts if this situation arises.
DEBT CAN BUILD UP
The longer the senior citizen lives in the home, the more debt she incurs under a reverse mortgage plan. It is easy to forget this debt exists and view the loan check as free money since it doesn’t have to be paid back right away. If a senior citizen is required to move after ten or twenty years, he may find himself with an extremely large debt to be paid.
HEIRS AND REVERSE MORTGAGES
Most of the time, paying back the reverse mortgage will fall to the heirs. Commonly, heirs have to sell the house after the senior citizen’s death in order to pay off the reverse mortgage. Heirs may also have to deal with the debt while the senior is still alive if she has to move into a care facility. Besides the financial burden, some heirs may resent dealing with the debt or having to sell the house they grew up in.
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