Is a Reverse Mortgage a Good Idea?

If you watch much television you may have seen commercials where well known actors tell seniors that if they need money getting a reverse mortgage is a good idea. After listening to an interview on the radio, I’m not so sure.

I don’t claim to be an authority on reverse mortgages but here are some points you might want to consider if you are thinking about getting one.

First, what is a reverse mortgage? It is a loan made against the equity in your house. If you’re 62 years or older and you really need some money, you can go and apply for this and they will give you an amount of money based on the equity in your house.

It sounds like an easy way to get cash but as my grandmother always told me, “If it sounds too good to be true, it probably is.”

In order to qualify you have to own your home and there are large fees required up front and of course there will be interest added to all payments. Also, if the house is owned by a couple both their names need to be on the title insurance. Why? Because if one person dies and both names were not on the insurance the one whose name was not on it will have to move out.

Another thing to be concerned about is what will happen to your home after your death. It’s impossible to leave it to someone in a will if it has a reverse mortgage on it. According to the article I read if someone dies and they have a reverse mortgage of $50,000 and the house is really worth about,200,000 then when they sell the property at the market value, they will get the difference between the $200,000 value when they repay the loan. So they’ll net $150,000, but no one will inherit the property.

Medicaid Concerns

Seniors who are on Medicaid need to be especially careful of the terms of a reverse mortgage. If you receive payments from the mortgage then sometimes the monthly payments can affect other government services, particularly Medicaid.

The time to know and understand all the terms of a reverse mortgage is BEFORE you apply for one…not AFTER! If you are considering applying for one please take the time to read the following article and research your decision carefully. Just because a television actor tells you they are a good thing, doesn’t make it so!

http://www.npr.org/2011/02/15/133777150/Reverse-Mortgages-Good-For-Seniors