For individuals reaching retirement age, a reverse mortgage seems like a great way to supplement their fixed income.
If a home is debt free, has no inherent structural faults and contains any significant equity, mortgage companies are loaning seniors’ money based on the equity of their property. This money can be dispensed in multiple payments or in one payment for the full property value.
Since there is no monthly payment there is very little pressure on the individual signing on to this type of mortgage. Mortgage companies recoup their loans when the mortgage owner dies, enters an elderly care facility or the property is sold.
Cash strapped retirees are signing onto such mortgages at an alarming rate. Even though interest is added onto these loans and must be repaid when the mortgage company collects from the individual or their estate, no one seems to be paying any attention.
In the United States, an individual must be 62 years old or older in order to get a reverse mortgage. Financial counseling is a prerequisite to insure the individual and others involved in their estate fully understand what is entailed in a reverse mortgage. The financial counselor must be approved by the Department of Housing and Urban Development.
Real estate taxes and home insurance must be kept up, if not, the loan could go into default. Interest and fees inherent in a reverse mortgage and added to the principal are usually far greater than those accompanying a conventional mortgage.
It is wise to do a little homework before signing on to any type of mortgage.
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