Pros and cons of reverse mortgages |
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"In
rural Massachusetts, we had an 83-year-old who needed to replace a furnace and
some windows," says Downey. "She was doing a reverse mortgage and consumer
counseling was required. They were HUD-approved counselors, totally independent
of the transaction, there to make sure the senior knows what is going on and provide
a system of checks and balances."
In this case, Downey says, one of the counselors
was from the same small town and was aware of programs and grants available in
the area. One program offered free furnaces to qualified individuals. She ended
up with one and also received some windows at no cost.
"There
are little pools of money around seniors that they are not aware of," he
says.
Downey identifies yet another factor that may muddy
the waters -- the influence of other family members or caretakers who push the
senior toward a reverse mortgage for selfish reasons, or counsel against it because
they want to inherit the property intact. He advises anyone considering a reverse
mortgage to take a good hard look at what other people stand to gain from the
situation -- if anything -- while considering outside advice.
Emotional
baggage
Boyce Watkins, a writer and finance professor at Syracuse
University, says one often neglected aspect, and downside, of reverse mortgages
can be the emotional impact.
"You're facing your own mortality,"
Watkins says. In addition, reverse mortgages impact where the homeowners live,
how medical bills will be paid and what the future holds inasmuch as financial
security is concerned. Most older adults nurture the idea of leaving something
to their children and believe their home is sacrosanct. Parting with even a little
of its value can be traumatic.
Watkins sees reverse mortgages
as similar to secured credit cards. "It looks a lot like free money and a
lot of people miss the fine print," Watkins says. "Many customers only
pay attention to two or three variables in a loan."
Watkins
echoes Tyson's advice concerning the value of good counseling -- and takes it
a step further. He says to talk to someone you trust, as well as a counselor --
and ask "a zillion questions, such as 'What will happen if I get sick and
go into a nursing home?'"
As Watkins points out, almost
all of the downside of reverse mortgages can be weighed before moving forward.
Read about them (the Federal
Trade Commission has some great information). Also, get several quotes from
reputable banks, understand the implications of ill health and find out how a
reverse mortgage could impact Medicaid eligibility.
Ultimately,
the decision is yours. Base it on what's right for your individual needs.
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