Do you think a reverse mortgage is a good option for older people to improve their cash flow or perhaps sole financial issues? The reverse mortgage is a kind of loan available to senior citizens in which they can borrow a certain amount of money against their home value. This kind of loan has no repayment of the mortgage being required until the particular home is sold or perhaps the homeowner dies.
However, even though this kind of loan sounds great but there are risks involve and homeowners must be aware about the risks of the loan.
There are at least 2 major lines of attack associated with this loan like;
• Most seniors do not use the loan where it is intended.
• They did not get enough information to help them make a good decision of what is best for them.
Here are the 4 reasons to be cautious about reverse mortgage;
Reason # 1 – They are not being used properly to supplement retirement income
This kind of loan is regarded as a means to aid borrowers without enough retirement income to meet their expenses. However, it does not happen in reality. Instead, the borrowers use the cash to pay their current mortgage debt. Although these people gain added cash flow, they lose the ability to utilize the home equity as protection from other kinds of major expenses like medical expenses and home repairs.
Certainly, borrowers usually resort to reverse mortgages since they do not have sufficient income to repay their home loan. Using home equity in this approach fails to deal with fundamental issues because borrowers simply prolonged the unsustainable financial condition.
In this situation, downsizing is considered a better option. This could lead to a more manageable maintenance and can lower the entire costs. If you choose this direction, you can lower your mortgage rates.
Reason # 2 – Individuals are tapping much of their equity
Even though you pull out one of these loans in order to pay the existing mortgage or perhaps other debts, remember that the danger still the same. You will have small equity left in order to fund your down payment or retirement in case you want to move later.
Reason #3 – You could probably lose your own home
According to sales pitches, there is no danger that you could lose your own home but this is not true. You have to stay current when it comes to property taxes, home insurance premiums, and maintenance. For those seniors who cannot meet these obligations can lead to future foreclosure. Bear in mind that if you consider these as your priority, you will be safe from any issues.
One thing to consider, some people have trouble when it comes to understanding this. If one spouse died, the surviving spouse will be required to pay the mortgage loan.
Reason 4 – It’s very hard to make a decision
Some government agencies are concerned about the advertisements of this kind of loan because this confuses borrowers about the risks. Applicants that attend the counseling are still confuse.
However, you have to consider that this loan is good only as long as the individual is alive. If he is already dead, the heirs are most likely to be left with debt and if the debt hasn’t been paid, they will foreclose the property.