Times When You Should Not Get A Reverse Mortgage

Section 9. Times When You Should Not Get A Reverse Mortgage

Everyone's situation is different. But there are certain times when, it is more likely than not, you should not get a reverse mortgage.

The first situation is a case where you, your spouse, or other family member live in the same home, but the home is owned by one person only. With reverse mortgages, when the last homeowner dies, the reverse mortgage becomes due and payable. If there is only one homeowner, he/she is automatically the last homeowner and when he/she dies, the reverse mortgage becomes due. If there is not money available to pay off the reverse mortgage loan, the home will need to be sold to pay off the reverse mortgage. If the home is sold, the non-owning family members must move.

An example of the above situation would be where you own your home, you are the only owner, your spouse does not own any interest in your home, and you and your spouse live in your home. You get a reverse mortgage. Tragically, you die and your home must be sold to pay off the reverse mortgage. Your spouse would have to move.

To avoid the situation in the example, you and your spouse need to both be owners of your home.

A second situation where you may consider a reverse mortgage, but probably should not get one is where you want to invest money in a business venture. This is a case of where most business ventures do not work out and once the reverse mortgage money is gone, it is gone. You will not be able to borrow more money using your home as collateral.

A third situation where you may be encouraged to get a reverse mortgage, but probably should not get one is where you are encouraged to buy an annuity. Basically, companies that handle annuities take your money, invest it, and then pay you on a regular basis. The problem is that reverse mortgages cost you interest. And the annuity payments are based on the projected interest that the annuity company expects to earn. Often there is not a big enough difference between the two interest rates for you to gain anything with the annuity. Also, there are fees to set up an annuity and generally these fees are non-refundable. In the end, you could actually lose money. Be very careful with the idea of buying an annuity with a reverse mortgage.

A fourth situation where a reverse mortgage may not be the answer for you is when you do not need the money or you need to borrow money for a short time only. While reverse mortgages can be set up like an line of credit so that money is available when you need it, and that is great for some people, if you do not need the line of credit (ie. you do not need the money to be available) why spend the money that it cost to set up a reverse mortgage? It probably isn't worth it. Also, if you need to borrow money for a short time only, it is probably better to get an equity line on your home. Many banks will set up an equity line for you at no cost to you. Therefore, you save the cost of setting up a reverse mortgage. The draw back with an equity line is that, unlike a reverse mortgage, you will need to pay regular payments.

This ebook is for general information only and may or may not be applicable to your situation. If you have any questions whatsoever, talk with a mortgage broker or lawyer licensed in your state.

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