If you’re a retiree, you have probably heard talk of reverse mortgages. What exactly are they? What are the pros and cons? Is a reverse mortgage a good idea for you personally?
Reverse mortgages are basically loans available to people over 62. Using your house as collateral, the lender gives you money to use during your retirement. The income usually is not taxable, and it generally won’t affect your Social Security or Medicare benefits. There are no loan payments — since you’re borrowing money against the equity in your house, you don’t have to repay the loan as long as you own the house. You can choose to receive your money as a monthly income, or as a line of credit — a pool of money you can write checks against. You can live in your home as long as you want. You can’t get evicted unless you fail to pay your property taxes or other expenses required by the reverse-mortgage contract.
A tax-free income and a home for life? Why wouldn’t you want to take out a reverse mortgage? To begin with, this deal is not free. In fact, it’s an expensive option. The fees connected with reverse mortgages can be very high.
Second, the loan has to be repaid when ownership of the house changes. If you sell the house, whatever money the lender has paid you will be taken out of the proceeds of the sale. If you live in the house until your death, the house changes ownership when you die, so the loan comes due. If the money you were paid over your lifetime equals or exceeds the value of the sale price of your house, there might not be anything left for your heirs to inherit.
Is a reverse mortgage for you? If money is very tight and you need another source of income, it can be a good option.

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