I know you’ve all seen commercials for reverse mortgages and you may wonder if they’re for you?  In my opinion, they’re not good for you.  But then, if you’ve read my book or posts, you know I’m debt adverse.

So, what exactly is a reverse mortgage?  It’s usually a loan for senior citizens that are 62 years and up.  The home has to be your primary residence.  You must have considerable equity in the home, or have it paid off to qualify.  You’ll still be responsible to pay property taxes, homeowners’ insurance, and maintain the property.  And, if you still owe money on the existing mortgage, you must pay it off before you can qualify for your reverse mortgage.  It can be paid off with your own money or added to the reverse mortgage.  The reverse mortgage lender then becomes the primary lienholder.

A reverse mortgage lets the owner convert home equity into money.  It can be paid out in a lump sum, line of credit, or in monthly payments.  In other words, the lender is paying you money towards your home instead of you paying the lender.  If the homeowner needs cash, they’re using the equity in their home to get it.

Moral of the story:

Why do I hate this idea?  You’re putting your home at risk.  If you sell the home, die, or move out of the home for any reason, you have to repay the loan with the interest.  Yes, as they’re giving you cash, you’re accruing interest on the loan.  You’re also responsible for any costs and fees that have been incurred.  If you die, your estate will be liable for this debt.

And, if for any reason you can’t pay off the loan, you will lose your biggest asset, your home.  You can lose the home if you don’t pay your property taxes, homeowner’s insurance, homeowners association fee’s, etc.  If you don’t maintain the home, you could lose it.  If you don’t live in the home for more than 12 consecutive months unless it’s due to medical issues, your loan could become due.  If you don’t pay, the lender could foreclose.  While it may sound awesome to get extra money every month, in my opinion, it’s not.  A reverse mortgage isn’t all that it’s cracked up to be.  The result is that the owner is going into debt.