Reverse mortgages have become increasingly popular in recent years as more and more seniors look to tap into their home equity to fund their retirement. But while these products have gained some traction, there is still a great deal of confusion and misunderstanding surrounding reverse mortgages, and many people need to be made aware of their potential pitfalls.
At first glance, a reverse mortgage is an attractive option. It allows homeowners aged 62 and over to access the equity in their homes without making monthly payments to the bank. Instead, the bank makes regular payments to the homeowner, which accrue interest and must eventually be paid back when the loan comes due, usually within one year of when they move out of the home or when they pass away.
But while there are certainly some advantages to a reverse mortgage, there are also some drawbacks that should not be overlooked. For starters, homeowners must understand that there is an element of risk involved with taking out a reverse mortgage – if you fail to pay your property taxes, maintain homeowners insurance, or pay HOA dues, you could find yourself facing foreclosure on your home.
In addition, it’s important that people understand that there are costs associated with these loans – including lender fees (though origination fees are capped at $6,000), FHA insurance premiums, closing costs and monthly servicing fees – all of which can add up quickly. There’s also the potential for accidentally violating asset restrictions for the Supplemental Security Income (SSI) or Medicaid programs which could lead to costly consequences later on down the line.
For these reasons, it may be wise for seniors to explore other options before committing to a reverse mortgage – such as life settlements – which come with fewer risks and benefits that can far outweigh those offered by a traditional reverse mortgage product.
A life settlement involves selling an existing life insurance policy in exchange for cash – allowing policyholders to receive a large lump sum payment without ever taking out any loan or risking their home. Life settlements provide policyholders with much-needed financial security while still allowing them to keep their assets intact and safe from creditors or foreclosure threats. Additionally, life settlements don’t require any fees or costs upon completion (although taxes may be applicable), making them significantly more cost-effective than traditional loan products such as a reverse mortgages.
If you’re considering a reverse mortgage but aren’t sure if it’s right for you, then exploring alternatives like a life settlement may be worthwhile. Click here, or call 844.932.8975 if you want information about how to sell your life insurance policy to help you live comfortably without unnecessary risk factors.