The expectation versus the true reality of retirement planning for many Americans can sometimes be shocking or surprising, and that’s why certain older Americans may seek to find alternative means of supplementing their cash flow in later life in order to fund retirement. That’s why reverse mortgages may be of consideration of seniors at least or over the age of 62, but pros and cons should be considered according to a newly-published piece from CBS News.
“Many Americans look forward to a peaceful and financially independent retirement,” the column reads. “And if they make the right moves earlier in their lives, they can hopefully put themselves in a secure position when they finally decide to end their career. But planning for a successful retirement and actually getting to enjoy it are two separate things. Sometimes big expenses or cash shortfalls are inevitable. This is when a reverse mortgage may make sense for some older homeowners.”
Since some potential reverse mortgage borrowers may consider such a product after having paid off all or a substantial amount of a long-term traditional mortgage, the consideration to enter into a new debt-based lending instrument should not be taken lightly, the column says. Still, there are several scenarios that might make a reverse mortgage an appealing option for certain seniors.
There are three primary “pros” the column explores.
“The freed-up equity can help pay down debt, pay off bills or complete home repairs. It’s always helpful to have extra cash, and a reverse mortgage makes that possible,” the column reads. “Unlike a traditional mortgage, monthly payments toward the loan balance aren’t necessary. [And finally,] should the homeowner find themselves in such a precarious position, a reverse mortgage can help pay off the mortgage loan balance and prevent potential foreclosure.”
The column also lists three “cons” that it says should be considered by potential borrowers.
“Closing costs and other fees could eat up some of the profit planned for use – and it won’t be made up,” it reads. “Those figures will be collateral damage for taking out the reverse mortgage. [Number two,] it decreases the cash value of your home. Whatever your home is worth before taking out a reverse mortgage, it will now be minus the mortgage amount, fees and closing costs. This is an important consideration for those planning on leaving their home (and its equity) to family members after their death.”
The third “con” primarily applies to borrowers who may qualify for other forms of government assistance.
“While it won’t be tacked on to your annual taxes (a reverse mortgage isn’t considered income), it could negatively affect your chances of qualifying for other assistance programs like Medicaid,” the column reads. “Make sure you consider the potential ramifications before acting.”
Read the article at CBS News.