A reverse mortgage is one of those financial tools that seems too good to be true. You get to live in your home, mortgage free, for the rest of your life? What a great deal! Well….not so fast. There are a few circumstances in which a reverse mortgage can make some sense for a homeowner, but most of the time it is just a way to give away the equity of your home and lose the freedom to move when you choose. Follow the rules below to ensure you don’t get ripped off with a reverse mortgage agreement.
Reverse Mortgage Dangers – Rules for Staying Safe and Not Getting Ripped Off
Rule #1 – Be Careful with the Lump Sum Payment
When you agree to a reverse mortgage, you will have the option of taking your equity in a lump sum payment or having it dispersed to you in monthly installments over time. It is tempting to take the lump sum payment and have all of that extra money in your bank account right away. However, if you are not responsible in your planning of that money, you can be in trouble down the road. By taking the monthly installments, you will be able to use the funds as an additional income stream and not risk tapping it out prematurely.
Rule #2 – Make Sure both Spouses are on the Mortgage
By the rules of a reverse mortgage, the balance of the loan is due when the owners are deceased or no longer live in the home. The problem with that rule occurs when only one spouse appears on the mortgage documents. If that spouse were to pass away, the balance would become due immediately and the living spouse would be forced to sell the home to pay off the debt. If you are interested in a reverse mortgage but either you and your spouse are not yet old enough to qualify, it is wise to wait until you can both legally be named on the mortgage to avoid this ugly situation down the road.
Rule #3 – Losing your Eligibility for Government Assistance
Using a reverse mortgage to make your home more affordable could possibly make the rest of your life more expensive. If you receive a large lump sum payment from your reverse mortgage, that money will be seen as income and could cause you to lose eligibility from government assistance programs such as Medicare. If you rely on those programs to pay some of your bills and otherwise keep you afloat, make sure that your eligibility will not be affected before you consider using a reverse mortgage on your home.