Pros and Cons of Reverse Mortgages

For whatever reason, a lot of people fail to plan for their retirement. They know that retirement is coming sometime and that they can’t work forever, but don’t take any active steps in order to successfully plan for their retirement. They find themselves at age 65 without any money, probably some debt, and nothing but Social Security to take care of them. This isn’t the best place to be at age 65, and they know it.

Some people try to live off of their Social Security income, but a lot of people aren’t willing to give up the luxuries that they’ve been able to have when they did have an income, so they look for other options. Some people choose to work in a part-time job for extra income, but there are those who think that they should be able to retire regardless of whether or not they did a good job saving for retirement or not. In most cases these people borrow money to finance their lifestyle, and one of the growing ways to pay for life throughout one’s golden years is through what is called a reverse mortgage. They’re some of the worst financial products on the market, and you should avoid them.

Essentially, a reverse mortgage is a loan which is available to senior citizens (people of age 62+ in the United States) that is used to liquidate the home equity the person has, but allow them to stay in the home until they sell it or pass away. Typically the loan money taken through a reverse mortgage comes on a monthly basis, but there are also instances where a lump sum is given. The borrower won’t make any payments until he/she moves or dies, but when the person is no longer in the house, the balance will be due in full.

The idea of creative financing seems like a reasonable and creative way to pay for one’s retirement until you look at it a little bit deeper. When you look at the numbers of a reverse mortgage, you’ll find that the fees and interest rate are some of the highest available on the market for any type of mortgage. Chances are you’re a lot better off just getting a regular mortgage if you think you must absolutely borrow money on your home to live.

There is also a lot of fraud in reverse mortgages. Senior citizens have long been preyed upon for financial scams; often time’s senior citizens could be on the very raw end of a deal and have their home taken from them! You personally might not be hit with some sort of reverse mortgage fraud, but given that this is a very highly targeted method of taking money from seniors, one shouldn’t even bother risking it.

Reverse mortgages are never a really desirable option. If the only wealth that you have is your home equity, it might just be time to sell your home. Most seniors will never do this because they are unwilling to face the reality that they cannot afford their home, and instead will try to keep up their lifestyle by borrowing money, because it’s the seemingly easy way out. Of course in doing so you’re throwing money away in fees and making sure that your family does not have any sort of inheritance!

It’s time to face the facts, if you find yourself in such a situation, you really can’t afford to retire. Take on a part-time job for some extra income, and consider moving into a smaller house or into a nice apartment, because as you get older, you really won’t be able to keep the house up and too much of your life will be invested in one piece of property. Stay away from reverse mortgages, they’re not the answer.