Reverse mortgages have become a very popular method for seniors to get cash out of their home during this recession. But what do senior citizens need to know about reverse mortgages before they commit?
- While reverse mortgages are a “no recourse” loan, the heirs of the debtor may still lose the property (to foreclosure) if the loan is not repaid after the debtor’s death or move.
- Reverse mortgages do not offer as much money as some seniors hope and need to fund their retirement years. These mortgages are usually only a fraction of what the equity in the house is truly worth. Therefore any foreclosure that takes place after the death or move of the debtor will reap a significant profit for the lender.
- Individuals who take out a reverse mortgage on their home have the option of receiving that payment as a lump sum or monthly payments. Those payments will only continue for as long as the debtor lives in the home.
- If a debtor takes out a reverse mortgage while they are still relatively young, for example in their sixties, it is very possible that they could run out of money quickly even with the reverse mortgage. While the mortgage lender can’t foreclosure while the debtor lives in the house, other creditors can pursue the debtor for repayment on other bills.
- If a debtor considering a reverse mortgage has other significant debts, it may be wiser to consider bankruptcy, discharge unsecured debts and use the freed up income to pay on nondischargeable debts while simultaneously preserving the equity in their home.
Only homeowners who are at least 62 years old, with no mortgage (or very low mortgage) and who have no liens against the property can qualify for a reverse mortgage.
To find out more about reverse mortgages visit: http://www.occc.state.tx.us/pages/consumer/education/RevMortArt.htm