Reverse Mortgages Pros and ConsWhy Use a Reverse Mortgage to pay for Long Term Care?Understanding Reverse Mortgages Pros and Cons.What is a Reverse Mortgage?A Reverse Mortgage is when you take out a loan against the value of your home. With this type loan, you do not have to pay the loan back for as long as you continue to live in your home. What you are doing is converting the value of your house into cash. Cash that you can then use to pay for long term care expenses. And, you do not have to repay the loan each month. The money that you receive from a reverse mortgage will be paid to you as: • Cash in a lump sum. • Cash advances on a monthly basis. • A line of credit that allows you to decide when and how much of the cash to withdraw. • A combination of any of the above options. Regardless of how the cash is paid out to you, a reverse mortgage is not paid back until you move out of your residence, sell your home or die. Eligibility requirements for a reverse mortgage include: • That you are at least 62 years old. • That you own your own home. On a standard home loan, the lender would check to see that you have income available to fund a monthly payment. With a reverse mortgage, because you do not have to make a monthly payment, you do not need a certain level of income to qualify. Bottom Line: You do not have to worry that you may lose your home if you do not make a monthly payment on this type loan. When do you have to repay the loan? Usually a reverse mortgage must be paid when the last surviving borrower of the loan dies, if the home is sold, or when the borrower moves out of the home permanently. Additionally, if a borrower fails to pay property taxes, keep the home insured or fails to keep the home repaired and maintained, the lender can declare that the loan is in default and either reduce the amount of cash that will be available in the future or demand that loan must be repaid. Now let's turn to the thinking points that cover reverse mortgages pros and cons. Check List - Reverse Mortgages Pros and ConsThe Advantages of Reverse Mortgages• You have the ability to decide how you want to receive the money. In a lump sum, a line of credit, a monthly payment or a combination of these choices. It is your decision.• Typically, this type of income stream does not impact your Medicare or Social Security benefits. • The Federal Trade Commission states that if you outlive the loan, meaning the total payments you receive are greater than the value of your home, you will not owe more than what your home is actually worth. • The advances you receive from a reverse mortgage are not generally taxable. • Typically, there are no requirements regarding how much income you make. • You are able to retain the title to your home. • The loan does not have to be repaid until the last surviving borrower dies, permanently moves from the home, or sells the home. • When the home is sold, the fees and loan are repaid. This is why it is very important to your reverse mortgage costs. Any remaining equity in the home will belong to your heirs or you. • The Home Equity Conversion Mortgage (HECM) program allows borrowers to live in a nursing home or other approved medical facility for up the 12 months before the loan can become due. The Disadvantages of Reverse Mortgages• The proceeds you get from a reverse mortgage could make you ineligible for Medicaid.• You do not qualify for this type loan if you are younger than 62. • Make sure you check how much you are being charged for closing costs and origination fees. • Beware of reverse mortgage scams. Shop around and talk to people you trust. • You are required to get free reverse mortgage counseling prior to making application for a loan. • Check to see how much the servicing fees will be during the term of the loan. • A reverse loan may have rates that vary. The adjustable rate is generally linked to short-term indexes. • Because the equity of your home is tied up in the reverse mortgage, there will be less assets available to pass on to your heirs. • Until the loan is paid off, the interest is not tax deductible. • Because interest is charged against the outstanding balance of the loan, your debt can increase. • You are responsible for making sure your property taxes, homeowners insurance, repairs and maintenance costs are paid in a timely manner. Otherwise, you may be default of the loan. Bottom Line: Know Reverse Mortgages Pros and Cons,Double check the list of Reverse Mortgages Pros and Cons. Of course you do not want to become a victim of reverse mortgage fraud. Talk to the experts, bank loan officers and financial advisors. They can help you avoid common reverse mortgage pitfalls.
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