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Understanding the Pros and Cons of Reverse Mortgages If you've watched a nightly news program or picked up a financial magazine during the past year, it's likely that you've seen at least one story about a relatively new financial product: The reverse mortgage. Designed to benefit older Americans, these types of mortgages have become one of the most popular and most hotly debated options available on today's financial market. Before you or your loved one decides to pursue a reverse mortgage, it's essential that you understand exactlywhat this type of loan promises, what it is designed for and how it will impact your financial wellbeing. Understanding Reverse Mortgages Senior citizens and older Americans who live on fixed incomes have faced serious challenges since the financial collapse of 2008. While food, utility and healthcare costs are on the rise, older Americans are forced to budget their fixed incomes to cover all of these costs. For some older adults, simply meeting basic human needs has become impossible in this tough economic climate. The reverse mortgage is designed to help older American address pressing financial needs by leveraging the equity in their homes. Instead of making monthly payments as they would do under a traditional mortgage, these borrowers can defer payment on the mortgage until they sell the house, move out or pass away. When managed correctly, the funds from a reverse mortgage can provide homeowners with an essential means of meeting needs, eliminating debt and rebuilding economic strength. Reverse Mortgages: The Pros There are a number of potential benefits in a reverse mortgage that may make it worth your while to look closely and consider it as a viable financial model as you retire and rely on a fixed income. Benefits include: - Financial resources to pay for long-term care, in-home medical services or other healthcare needs.
- Four The protection and backing of the Federal Housing Administration (FHA) and Housing and Urban Development Department (HUD).
- A tax-free income that does not affect eligibility for SSI and Medicare benefits.
- An opportunity to escape foreclosure or get out from underneath an overly expensive mortgage.
Reverse Mortgages: The Cons As with all financial products, there is more than one side to reverse mortgages. While these loans can provide financial assistance and freedom to older adults, they are not without their risks and drawbacks. As you consider your mortgage options, remember that reverse mortgages: • - Can interfere with Medicaid benefits, making some senior citizens ineligible for this important program.
- Are very difficult to understand, making it easy for seniors to fall prey to predatory lenders.
- Are still relatively new, meaning that borrowers must be extremely careful when reviewing terms and conditions. •
Is A Reverse Mortgage The Right Choice? Before you decide if a reverse mortgage is a viable option, take some time to sit down with a financial planner. It's essential that you decide how payments from the mortgage will be used so that you don't end up in serious financial trouble. You should also be sure that you understand how this type of mortgage will affect your eligibility for government programs such as Medicaid. Working with an Experienced Mortgage Banker If you're considering a reverse mortgage, be sure to talk to a reputable, local mortgage banker who can explain your options in detail. A reverse mortgage can be confusing, so working with a professional can streamline the process and increase the likelihood of a successful outcome.
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