There are a multitude of people out there researching reverse mortgages. Part of that process involves researching reverse mortgage pitfalls, as well as reverse mortgage benefits. Reverse mortgages are available to people over the age of 62 who own and reside in their own home. A reverse mortgage allows you to tap into a portion of your equity to obtain a mortgage, but instead of you making payments to the lender, the lender pays you. Not having to make any payments for the life of the loan is definitely NOT a reverse mortgage pitfall. Payments on the loan are not required until there are no borrowers occupying the home as their primary residence. Researching reverse mortgage pitfalls is the best way to avoid them.
There are fees associated with a reverse mortgage and they can be higher than a conventional loan if you do not do your homework. The fees are only considered a reverse mortgage pitfall if you agree to pay them. There are certain fees that can be negotiated and some that are mandated by the Federal government. The mandated fees can be considered a reverse mortgage pitfall, but the fact you can shop for the other fees is a reverse mortgage benefit. As with any other financial tool it is for you to decide if the reverse mortgage pitfalls are outweighed by the benefit to you and your situation. A reputable company should be willing to explain all fees and provide an estimate of all costs upfront.
Many people in today's society have come to believe that inheritance is some sort of entitlement. When most children think of their parents and their inheritance, seniors are finding that their children would much rather have their parents live the life they want to live and be self reliant, than to have them live in financial stress during their remaining years. For many, being able to afford the gift of remaining in their home for as long as they can is a true gift. This can be a reverse mortgage pitfall if you want to leave your home to your children or heirs without encumbrance. This is only a reverse mortgage pitfall if you fail to plan. Oftentimes a life insurance policy will enable your heirs to satisfy the reverse mortgage upon your death and keep possession of the family home.
Creating a financial obligation that has to be repaid with interest can be considered a reverse mortgage pitfall. This may not be a huge concern for elderly homeowners given that they are unlikely to buy another home or make a sizable purchase. Planning properly concerning the proceeds of your reverse mortgage can make purchasing any large ticket items very simple. Another perceived reverse mortgage pitfall is the impact on acquiring credit cards. Many seniors are using their reverse mortgage proceeds to eliminate their credit card debt. Not having credit card debt is usually NOT considered a reverse mortgage pitfall.
Reverse mortgage may impact Medicaid benefits but it does not impact Medicare or Social Security benefits. The deciding factor on whether or not this is a reverse mortgage pitfall depends on how you receive and disperse the funds received from your reverse mortgage. Any funds received from the reverse mortgage would be considered an asset. Those funds would have to be utilized within 30 days. Obviously this is not a reverse mortgage pitfall if you are looking to pay your current mortgage and any additional debt. If you opt for the monthly payment option you need to consult an accountant to make sure your additional payments keep you under the liquid assets minimum, which is $2000 a person or $3000 a couple to still qualify for Medicaid. Once again, not necessarily a reverse mortgage pitfall if you research and plan ahead.
The equity in your home will decrease as your reverse mortgage accrues interest, this can be considered a reverse mortgage pitfall. It can be a very emotional decision to tap home equity. Many people see their house as a place to reside, not as a resource to pay for everyday expenses. The National Council on Aging's handbook Use Your Home to Stay At Home states, "You must balance your desire to preserve home equity with the risk of not having enough funds to continue to stay at home. Pinching pennies can lead to poor nutrition, health complications, or a serious accident that can put you in a nursing home." You must consider this reverse mortgage pitfall versus the many pitfalls of not being able to stay in your home and enjoy your retirement.
Occupancy, taxes, insurance, and continued upkeep can be a reverse mortgage pitfall if you are not prepared in advance. Living in the home as your primary residence is a stipulation of a reverse mortgage. If you have an accident or have an illness and are temporarily away from home, you have up to 6 months for recovery with a six month extension available for documented circumstances. Another option is to set aside a portion of your reverse mortgage funds for at home healthcare. Taxes and insurance are a necessary reverse mortgage pitfall because you retain ownership to your home. Funds for these items can be put in a separate account specifically for payment and upkeep. Funds from a reverse mortgage can also allow for needed repairs at the time of closing, bringing your home to its original (or better) splendor. Making sure your home is a safe place to live and is protected against any unforeseen circumstance is in no way a reverse mortgage pitfall.
If you decide to take out a reverse mortgage, weigh all the reverse mortgage pitfalls against all reverse mortgage benefits to find the best solution for you. Check with different lenders to check that the interest rate and reverse mortgage fees are competitive and fair. Only sign papers that you understand. Ask questions if you are confused. Get help from a trusted family members or friends who understand financial matters. Federal law gives you three days to get out of a reverse mortgage contract. You may cancel the loan for any reason, but you must do it in writing within three business days. Do your homework and you have no reason to worry about reverse mortgage pitfalls. Planning ahead is the key to turning a reverse mortgage pitfall into a reverse mortgage benefit.