The expectation versus the true reality of retirement planning for many Americans can sometimes be shocking or surprising, and that’s why some older Americans may be looking to find other ways to supplement their cash flow later in life. life in order to finance their retirement. This is why reverse mortgages can be considered by people aged at least 62 or over 62, but the pros and cons should be considered according to a recently published article by CBS News.
“Many Americans look forward to a peaceful, financially independent retirement,” the column read. “And if they make the right choices earlier in life, they can hopefully put themselves in a safe position when they finally decide to end their careers. But planning a successful retirement and enjoying it are two separate things. Sometimes big expenses or cash shortages are unavoidable. This is when a reverse mortgage can make sense for some older homeowners.
Since some potential reverse mortgage borrowers may consider such a product after paying off all or a substantial portion of a traditional long-term mortgage, consideration of a new debt-based lending instrument should not not be taken lightly, says the column. Still, there are several scenarios that could make a reverse mortgage an attractive option for some seniors.
There are three main “benefits” that the column explores.
“The released equity can help pay off debt, pay bills, or make home repairs. It always helps to have extra cash, and a reverse mortgage makes that possible,” the column read. “Unlike a traditional mortgage, monthly payments on the loan balance are not required. [And finally,] If the homeowner finds themselves in such a precarious position, a reverse mortgage can help pay off the mortgage 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 expected profit for use – and they will not be offset,” it read. “These numbers will be collateral damage for taking out the reverse mortgage. [Number two,] this decreases the cash value of your home. Whatever your home was worth before you took out a reverse mortgage, it will now be minus the mortgage amount, fees, and closing costs. This is an important consideration for those considering leaving their home (and its equity) to family members after they die. »
The third “con” applies primarily to borrowers who may qualify for other forms of government assistance.
“Although it won’t be added to your annual taxes (a reverse mortgage is not considered income), it could negatively affect your chances of qualifying for other assistance programs like Medicaid,” says the column. “Make sure you consider the potential ramifications before you act.”
Read it article at CBS News.