The Dangers of Reverse Mortgages

By John H. Drake

While you should be aware of the dangers of a reverse mortgage before getting involved with one, a reverse mortgage can also be a life saver for many. A loan of this type is also particularly popular with those who have retired and are cash poor but have a lot of equity in their home.

How does a reverse mortgage work?

They work much like the name implies. If you have equity in your home you can get a reverse mortgage which will allow you to pull out that equity in the form of a one-time lump sum, monthly payments, or a line of credit to be pulled out as you need it. It’s like a mortgage but in reverse. Instead of paying money each month, the bank pays you from the equity in your home.

What are the pros of reverse mortgages?

Beyond the obvious benefit which is the ability to get your hands on your home equity so that you can spend it on anything you wish, this type of loan doesn’t mean that you lose your home entirely when you pass away. You can still will your home to your heirs when you pass on, the only caveat is that the home will be passed on with the remaining balance which will reflect any and all money you pull out via your reverse mortgage.

What are the dangers of reverse mortgages?

The dangers of these home loans is primarily that you will be spending your home equity and if you are still young and may have unforeseen expenses ahead of you, or if you have children that are depending on the security that you have created for them by building up the equity in your home, by getting a reverse mortgage you will have weekend your financial security.

Want more information?

Find out how to get the best reverse mortgages at the Home Loan Encyclopedia.

http://homeloanencyclopedia.com is a free resource for anyone looking for a home loan or looking to learn more about mortgage loans in general.

Photo by Hans Fransen

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