Wednesday, August 21, 2019
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Two Common Reverse Mortgage Pitfalls

A reverse mortgage is a way for seniors to supplement their income by converting the equity they have in their primary home into cash. Lenders do not require repayment until a borrower dies or decides to sell the residence. This means that borrowers are able to liquidate and use a portion of their equity, while remaining in the home until their passing. It is not surprising that seniors would be interested in this arrangement. Unfortunately, there are a few reverse mortgage pitfalls that potential borrowers should be aware of.

A Reverse Mortgage May Impact a Borrower's Ability to Pass on the Family Home

Of the possible reverse mortgage pitfalls, this is one that many consumers tend to be especially worried about. Like all loans, reverse loans must be repaid. In many cases, this is done after the borrower's death. Upon the borrower's death, the home will be sold and the lender will be reimbursed the loan amount , plus interest and associated fees. Any remaining equity will belong to the borrower or the borrower's heirs.

What is important to realize is that the lender of best tribal installment loans does not take the title to the home. The borrower will still own his or her home. This financial product is a lien against a consumer's property. If a borrower wants his or her children to inherit the home, there are ways to make this happen.

One possible option is to obtain an insurance policy that covers the loan amount. This will allow the borrower's heirs to repay the loan and inherit the family home after their death. Like many pitfalls, this is one that is possible to get around.

A Reverse Mortgage Might Leave a Borrower Ineligible for Certain Benefits

In addition to losing the ability to pass on one's home, other reverse mortgage pitfalls might affect a person's benefits. When obtaining this financial product, borrowers will choose to receive their payments in installments, receive a lump sum, or open an equity line. What some consumers fail to consider is that these payments might be considered assets and thus impact a person's ability to qualify for Supplementary Security Income (SSI) and Medicaid.

Medicaid and SSI are only available to consumers who have limited liquid assets. If a borrower receives a large lump sum after obtaining a reverse mortgage, this may disqualify him or her for these programs. Fortunately, a person's Medicare and Social Security benefits will not be affected.

As with other reverse mortgage pitfalls, there are ways for consumers to work around the issue. Instead of choosing to receive a large lump sum, borrowers who want to keep their benefits can choose to receive their cash in installments. As long as the borrower spends the money within the month, it will not affect their Medicaid or SSI.

While these reverse mortgage pitfalls are important to consider, many seniors choose to pursue a reverse mortgage despite the possible disadvantages. These loans can be hugely beneficial for borrowers who want to supplement their income, reduce their debt, or make a large purchase. Educating oneself to these possible pitfalls is essential to obtaining a loan that benefits one's financial standing as well as the future of their estate.

Katie spends her time exploring financial products and learning about their pros and cons. To learn more about reverse mortgage pitfalls, make sure to read all her articles!


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