A reverse mortgage can be a beneficial financial tool for those 62 and above who qualify, despite the risks involved. So when do the pros outweigh the cons when it comes to reverse mortgages? Here are some easy ways to decide for your specific situation.
The Risks Of Reverse Mortgages
The risks of reverse mortgages are actually relatively few and easy to realize when your need trumps the risk. One of the main risks is that interest rates on reverse mortgages is compounded, meaning that each month the interest accrued for that month is added to the total of the loan and then next month’s interest is calculated based on that new total. This means that the interest for the entire loan accumulates much faster. This risk is more prominent if the homeowner plans on selling the home to end the reverse mortgage because a large portion of that sale would go towards interest and nothing else. Another potential risk is that the income received from a reverse mortgage may make you ineligible for Medicaid and/or any other federal benefits.
Overcoming The Risks
To make sure the pros outweigh the cons, make sure the homeowner only takes out as much on their reverse mortgage as they need to prevent unneeded interest accumulation. If there are any concerns about interfering with federal benefits, contact the agency and find out exactly what would interfere with such benefits. Discuss with them the various payment options for a reverse mortgage, including monthly payments, lump sum, or a credit line in order to determine which would likely interfere the least with your benefits. In the end, if you really need the money, there is very little risk that trumps that need.
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