As the baby boom generation starts to retire, major financial decisions will be placed upon them.
One of the largest will be whether or not a reverse mortgage is an appropriate financial tool given their financial situation.
To that end, I am going to list the pros and cons of using this type of mortgage... this way you can get an objective and unbiased view as to whether or not a reverse mortgage may be the right decision for you.
Pro:
First and foremost this type of mortgage will help you to retain your financial independence by allowing you to stay in your home... without making payments... through the life of the loan. And as I said, there are no payments made to the lender on the reverse mortgage
The total loan is due only when you no longer reside in the home.
There are no restrictions on how you choose to use the proceeds of the loan... you use it as you see fit.
As a heavily regulated industry, some of the fees and expenses associated with the loan are limited.
You will also benefit from the non-recourse clause, which states that you can NEVER owe more on the mortgage than the house is worth. This is something that MANY seniors are concerned about.
Therefore, have your attorney/financial advisor make sure that the mortgage is non-recourse.
The lender also never takes title to the property... this is a myth that has been around since reverse mortgages first became popular in the 1990's, but you retain control of the title.
And perhaps the biggest benefit is the ease at qualification... there are no income or credit checks.
But applying for and obtaining a loan is not all a bed of roses... there are potential pitfalls and disadvantages that you must be aware...
The first one doesn't have anything to do with the loan itself... but a lot of people don't handle large sums of money well. After all, if you did then you probably wouldn't need the reverse mortgage in the first place.
So considering that more people are taking out reverse mortgages at younger ages than ever before, it stands to reason that one must question whether they have the financial savvy to live off of the equity of their home in a retirement that could last for 20 years or more.
I am not saying that it isn't possible, just that you need to be of your situation and if you can sustain yourself in retirement for 20 years or more.
Next, there is the potential for abuse from either family members or financial advisors that does not have the borrower's financial interests at heart. While the mandatory counseling session does tend to alleviate this it is still something to be aware of.
Also, considering the amount of money you are borrowing this can be a VERY expensive way to borrow money... and the reverse mortgage may be more expensive than obtaining a conventional mortgage.
Also, some of the reasons for taking out the loan, such as home improvements, will be more expensive than other methods of financial or government assistance that may be available to needy seniors.
All in all, a reverse mortgage CAN be a good financial tool, if you know the facts before you get involved with one.
Tony Rovere became an advocate for seniors after his mother's heart attack forced him to learn about senior issues.
He writes about reverse mortgages at his blog, http://hecmreversemortgage4seniors.com, to provide seniors with unbiased information about reverse mortgages and the ramifications of obtaining a reverse mortgage.
Article Source: http://EzineArticles.com/?expert=Tony_J_Rovere
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