There are many reasons people take out reverse mortgages. However, this option is usually considered by cash-strapped seniors who own their homes and are looking to ease the burden of their golden years.
The beauty of reverse mortgages is that you'll receive money as long as you are current on property taxes and homeowners insurance.
While this seems like an appealing opportunity, it's a decision that should not be made lightly. Not only is the reverse mortgage complicated in itself, but homeowners make all sorts of mistakes when they're too quick to sign the dotted line. So if you're considering one, be wary of the common pitfalls below.
Buying Into A Scam
With reverse mortgages becoming a more common option for those over 62, mischievous opportunists are searching for ways to solicit seniors in need of help. Scammers will take advantage by charging high fees, funneling off parts of payments, creating fake loans or committing identity theft. Ensure you use a lender approved by the Federal Housing Association.
Confusing Your Payment Options
Reverse mortgages come in many forms. You can get the amount in one lump sum. Tenure payments are another option that give you a certain amount each month until you die or move out. There are also term payments, lines of credit, and modified tenure and term payments. You need to take the time to research your options and decide which one will be best for you in the long run.
Compromising Government Assistance
There are several government assistance programs that set asset limits on your monthly spending. These programs provide aid for low-income and disabled individuals. If any assistance programs financially support you, then be sure to consult their advisers before determining your reverse mortgage plan.
Disregarding Other Options
Reverse mortgages are extremely expensive and many people see them as their only option. However, there are other alternatives. Consider taking out a personal loan, downsizing or even taking on roommates. The Golden Girls always seemed to have fun.
A reverse mortgage could be just the thing to give you the extra cash flow you need and ease your mind. However, make sure you're consulting a trusted home financing specialist, reading the fine print and have carefully considered all your options.