Wednesday, 3 April 2013

Reverse Mortgage

It's difficult to turn on the television these days without seeing a slew of commercials for reverse mortgages. They feature past-their-prime celebrities such as Henry Winkler and Fred Thompson, extolling the benefits of "guaranteed tax-free income" for those 62 and over. What they don't tell you is that reverse mortgages can be dangerous and can put your biggest asset - your home - at risk.

A reverse mortgage really a misnomer. It is really nothing more than a regular mortgage, except that the loan proceeds are paid out to you in installments, rather than all at once. These plans mortgage the existing equity in your home, bleeding it down while it accrues interest on the growing debt. This mortgage does not have to be repaid until you either sell the home or die. Then the loan balance, interest and accrued fees are extracted from the sale proceeds. This type of loan can be beneficial in a very limited set of circumstances, such as allowing a senior to remain in his or her home, rather than having to sell it to pay for medical or other unexpected expenses.

In many circumstances, however, a reverse mortgage can be a risk to your financial security. Here are six dangers you should consider before signing on the bottom line.

Complexity

Each lender offers slightly different products under the reverse mortgage banner. The rules are often complex and the contract you sign can be full of hidden landmines. The program will outline fees and interest, along with rules for repayment or default. Regardless of what the salesperson says to you verbally, have a lawyer review the contract and explain it to you in plain English before signing.

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