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By Mike Valles

Pros and cons of a reverse mortgage

When it comes time to retire, more and more seniors are getting a reverse mortgage. These mortgages provide a way for many seniors to go from barely having enough to get by in retirement to go to much more comfortable golden years. Before obtaining a reverse mortgage, it is a good idea to consider the pros and cons first, because they may not be for everyone.

The Pros of reverse mortgages

There is little doubt that a reverse mortgage has a number of good benefits to them. They include:

1. Easy to qualify

When applying for a reverse mortgage, there really are only three qualifications. They are:

  • Youngest spouse must be at least 62 years old.
  • Must own the home and it must be the primary residence.
  • Have considerable more equity than debt in your home.

2. Eliminates remaining mortgage payments

It is not necessary to fully own the home in order to qualify for a reverse mortgage. There simply needs to be enough equity in it to pay off the existing mortgage and more in order to receive any cash for retirement. Reverse mortgages immediately reduces overall debt if money is still owed on the house, which frees up even more money by reducing the monthly outflow of cash.

3. Choose how money is to be received

As part of the reverse mortgage agreement, homeowners decide exactly how the money will be received. There are several options. The money can be distributed as a lump sum, as monthly payments, or in some kind of combination of these two methods.

4. No repayment until house no longer needed

The house may be continued to be lived in by one of the spouses, even after one dies. The owner also holds on to the deed. After the last owner moves into a nursing home, or decides it is no longer needed, the home will be sold to repay the reverse mortgage. No payments are made on the mortgage until that time.

Cons of reverse mortgages

Although the benefits are certainly attractive, it is also important to take a look at some of the cons of reverse mortgages.

1. Home must be maintained

While living in the house, there are still some expenses that must be met. The homeowner is expected to maintain the home and keep it in good condition. The insurance and taxes also have to be paid. In order to ensure that this done, the mortgage company will verify that the homeowner will be getting enough of a monthly income to be able to adequately pay for both, and maintain it, too, before issuing a mortgage. Not paying for these things could mean that the home gets sold faster than anticipated.

2. The home could be sold earlier than expected

The AARP warns that it is very important for both spouses' names to appear on the reverse mortgage documents. Without this, when the spouse whose name is on it dies, or moves out of the house into assisted living, the lender may force the remaining spouse into selling the house.

3. Watch the interest rates

When it comes to interest rates on reverse mortgages, the rates are considerably high. Although relatives are promised to be given the balance of the money in equity when the house is sold, a high interest rate may leave them with nothing. In this type of mortgage, the interest builds fast because no payments are being made. This makes it essential to do research and go for a lower rate. Also, be aware that the younger owners are when getting a reverse mortgage, the higher the interest will be that must be paid back.

For some seniors, a reverse mortgage may be the only way to obtain a more secure and comfortable future as they retire. Others may want to carefully consider all the options available before making a choice.

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