Setting the Record Straight on Reverse Mortgages

I read an article this morning by a fellow blogger who stated some “Pros and Cons” about reverse mortgages.  This is something that needs to be really looked into because I believe there are a great number of folks who have opinions about reverse mortgages who truly don’t understand them.  

As for the Pros of the article, I believe the author got it right.  A reverse mortgage can keep a senior in their home, cover outstanding debt, and provide a higher quality of life.

However as for the Cons, I believe there are some misconceptions that the writer needs to look into.  To begin with, the author claims that a reverse mortgage produces income and an increase in income can affect Medicaid qualifications.  While its true that an increase in income may affect Medicaid, it is not true that a reverse mortgage is considered income.    Home equity does not affect Medicaid nor does the conversion of that equity into cash affect Medicaid as it is not truly perceived as income.   This concept can be clearly understood when you think of a typical wage earner who shows $40,000 on a W-2 and one year takes out a Home Equity line of Credit for $50,000.  When Tax time comes around, the wage earner does not declare that he or she made $90,000; they claim $40,000.   A reverse mortgage is the same thing.  It is simply the ability to access the equity in your home. 

The second point the author points out is the negative impact the reverse mortgage has on the inheritance of the next generation.   This point irks me, but its more of a personal issue.  I do not believe that I, as an offspring of my parents, am entitled to an inheritance.  I would certainly love to get one; but the reality is that my parents raised me, fed me, clothed me, and made my time with them special.  How much more can I ask for.  Should they really suffer in their later years, because they are worried about saving up to give me more when they pass away?  Absolutely not! I am an adult and I need to make my own way.   (I will note, I believe the author most likely feels the same way).

I believe when you look back at the Pros and Cons of Reverse Mortgages, you will notice a great deal more Pros, than Cons.  None-the-less, entering into a reverse mortgage is something that one should not take lightly.  Fortunately there are counselors that seniors are required to meet with prior to executing a reverse mortgage.  Ideally these counselors will uncover any flagrant flaws, or red flags, that would be reasons why a reverse mortgage is not the right product.

Related posts:

1. Why Does HUD Record A Second Mortgage On Some Reverse Mortgages?
2. Why Does HUD Record A Second Mortgage On A Reverse Mortgage?
3. When Do Reverse Mortgages’ Pros Outweigh Their Cons?
4. Reverse Mortgages: Just the Facts Ma’am
5. Are Reverse Mortgages Tax Free?

This entry was posted on Friday, June 5th, 2009 at 10:48 am and is filed under Questions About Reverse Mortgages. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.