Thursday, March 1, 2012

Should You Consider a Reverse Mortgage?

The recent unsettling financial climate and some still-unrecovered stock market losses have combined to present a large number of area homeowners with an unforeseen dilemma. At the threshold of retirement, these residents find that they are now cash poor and equity rich, uncomfortably pressed by a cash flow shortfall that threatens the peace of mind they have worked a lifetime to insure. They can take some comfort in the fact that they are far from alone in their situation. But that doesn’t solve the problem.  

For some local homeowners, a reverse mortgage is one option that may provide some of the cash flow needed to maintain a comfortable retirement. It is also true that a reverse mortgage is no quick fix that solves cash problems without any consequences. However, although a reverse mortgage is not the right fit for everyone, there are those who could greatly benefit from the advantages it offers.  

Individual details of reverse mortgages vary just as do the individual circumstances of their eligible borrowers, seniors over the age of 63.  The principal advantage of a reverse mortgage is that it enables senior citizens to remain in their home without worrying about a monthly mortgage payment.  Since a reverse mortgage is also usually tax-exempt, the effect can be considerable. As one senior, a Florida retiree, put it recently, “It’s as if a huge weight has been lifted off my back, I can now live more comfortably during retirement.” Since there are often no stringent income or credit history requirements, the reverse mortgage itself may be available when other loans are not.  

Of course, there are some serious implications that should be weighed before accepting a reverse mortgage offer. It is most common for a reverse mortgage to carry higher upfront fees than most other forms of financing. You can also expect that the amount of equity that will remain for heirs will be reduced, depending upon market factors. In the event of a violation in the reverse mortgage’s terms, the loan could possibly become due and payable at any time. Since that would undermine the whole purpose of the strategy, some serious pencil and paper work should go into the evaluating process – all the more so since it might also affect some need-based government assistance benefits.  Other factors should be noted, such as the fact that interest accrued cannot be deducted on taxes until the loan becomes due, and there will very possibly be a drag on your ability to liquidate equity.   

All in all, any area senior citizen who might seriously consider entering into a reverse mortgage should first consult an estate attorney and tax professional to get their practical advice.  In all cases, if you are a homeowner who is considering your options, give me a call to schedule a complimentary home evaluation.  Your local home may be worth more than you think -- and selling could turn out to be a superior option!

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