Reverse mortgages should only be used as a last resort.
You know the old saying, “If it seems to good to be true, then it probably is.” Well, it seems that saying could easily apply to the reverse mortgage industry. Because of that, if you are considering one, you need to proceed with extreme caution.
Being able to borrow against the value of your home can seem like a really good idea at the time, but when it comes time to repay the loan (because that’s what this is after all), it can create real problems for your heirs or even yourself if you end up having to move out of your house unexpectedly.
As chronicled in this article from the New York Times, many lending companies are not behaving on the up and up when it comes to repayment of reverse mortgages. These shady practices create a lot of extra stress (emotional, financial and otherwise) on those left behind. After reading the full article, one has to wonder, “Is a reverse mortgage EVER a good idea?”
They can be. According to the website, eldercarelink, reverse mortgages can be a good idea when:
- you own your home free and clear or have a low mortgage balance.
- if you’re over 70.
- if you need extra money for medical costs or other bills.
- if you want to use the proceeds to downsize to a smaller home.
But sometimes, reverse mortgages can be a bad idea. This is especially true if:
- your home lost a lot of equity in the housing downturn.
- you aren’t that old.
- the mortgage lender pressures you and also asks you to buy annuities or expensive financial services.
- you plan to move in a few years.
- you want to leave the home as an inheritance.
Bottom line from Dave: In most cases reverse mortgages should only be used as a last resort! The costs of these loans make them a very expensive way to get funds. A home equity line of credit should be considered before a reverse mortgage. And you should definitely get advice from an experienced elder law attorney before doing so. It’s possible that other benefits such as VA or Medicaid could be a better option for care than a reverse mortgage. Give us a call at 217-726-9200 if you have questions about this topic.