Risks of a Reverse Mortgage
Losing a home can happen to anyone. Charles Wheeler, the revered former Kansas City mayor, lost his home of more than 40 years when financial trouble hit. Medical bills, back taxes and insurance payments on the house became too big to handle.
Seeking a source of cash, Wheeler took out a reverse mortgage on his home. But as it often ends up with reverse mortgages, the result was the loss of his home.
Reverse mortgages are touted as a way for seniors to improve their quality of life by converting the equity in their homes into cash. Reverse mortgages provide loans in the form of a lump sum, monthly payments or a credit line. These loans do not have to be repaid until the homeowner sells the home, moves or passes away. But if the homeowner fails to pay insurance or property taxes on the home, the lender can foreclose on the home.
There are several other negative features of reverse mortgages:
- Loan payments can result in loss of Medicaid and Social Security Insurance benefits.
- Interest rates are generally higher than traditional mortgages or home equity loans.
- Closing costs of a reverse mortgage can top $6,000.
- Lenders often charge service fees throughout the term of the loan.
- The reserve mortgage can tap most or all of the equity in your home, leaving your heirs with a depleted asset — or nothing at all.
Because of these negative features and risks, Harold Shepley & Associates generally advises clients against reverse mortgages. But other debt management options are available. Contact our office in Somerset, Pennsylvania for a free initial consultation to discuss your debt relief options.
July 19, 2013 Posted in Debt, Financial Distress Tagged debt management, negative features, risks of reverse mortgage Leave a comment
