When is a Reverse Mortgage Not Right?

By: Michael Branson

I have seen a lot of good that Reverse Mortgages have done for senior borrowers. I've seen them change lives and living situations for the better. I've seen people come out of foreclosure with a reverse mortgage and never have to make another mortgage payment. But is there a time when a reverse mortgage is NOT right? Honestly, yes.

There are a few examples I can think of off the top of my head for which I would advise a senior borrower not to get a reverse mortgage. Reverse mortgages are not inexpensive, if you did not intend to occupy the property much longer, that is, you thought you would move soon, I would advise against a reverse mortgage unless it was the only alternative you had to keep your home out of foreclosure in the mean time. Some married couples have one borrower old enough to take advantage of a reverse mortgage but the other spouse is too young.

In this instance, I see them wishing to quit claim the younger spouse off title to obtain the reverse mortgage. I don't recommend this unless the older spouse is adequately insured so that if the older spouse passes, the mortgage can be paid in full. If not, the loan would be due and payable, and even if the younger spouse was now old enough to qualify for a reverse mortgage, chances are pretty good that he/she would not be eligible for a high enough loan amount to cover the old balance left by the reverse mortgage from the passing older spouse that has accumulated interest. In this case, if the younger spouse did not have adequate funds from another source to pay the mortgage in full, he/she would be forced to sell the home and would be displaced.

I do not recommend a reverse mortgage to those whose health is so bad that they know there will not be at least one borrower able to stay in the home anyway (once all borrowers on the original loan are out of the home for a period of 12 months, which includes nursing homes, the mortgage becomes due and payable). There is no income qualification for a reverse mortgage, however, if you know that even with the relief you gain from a reverse mortgage you cannot afford the taxes, insurance and upkeep on your property, then I would suggest you look at other alternatives. Reverse mortgages require that the borrowers still pay all the taxes, insurance and maintain the property in reasonably good condition.

If your monetary needs are temporary, then the costs of a reverse mortgage may not make it the best option. Finally, if you don't really even need a reverse mortgage and someone is trying to talk you into one, then talk to your trusted family members or financial advisor. It could be that the person trying to convince you is looking out for your best interests and wants to see you more comfortable or prepared for future events, or it could be that they have other motives and you need to really look at your circumstances and determine whether a reverse mortgage is right for you.

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