Experts say that while previously risky reverse mortgages evolved to become a good financial tool for the retired;
Government funds get praised for someone looking for a relatively low-risk investment.
What are the downsides to this program, if there is one.
Historically, reverse mortgages have had two major drawbacks.
First, they were relatively expensive in closing costs, insurance cost and interest rate. Second, most of the people who took them out shouldn’t have.
Recently reverse mortgages evolved, changes have reduced the costs for reverse mortgages. New regulations have limited the amount of the loan value that a borrower could take out in the first year.
The issues with reverse mortgages came about because they were often afforded to people who had no other assets, were in debt, and really needed to rethink their shelter needs rather than borrow. The result was that borrowers would take out the maximum amount and then fail to make tax and insurance payments.
This put the lenders in a tough place. But if you are retired, healthy and not dead broke, new research indicates that a reverse mortgage can be what they were hoped to be — another tool for managing retirement income and spending.
One thing that contributes to the use of reverse mortgages is that the money borrowed is tax-free, since it is your home equity.
Added withdrawals from retirement accounts, on the other hand, can be burdened with high tax rates
Looking at other scenarios to tap into using equity from a seniors home would leave the average “Joe” unable to qualify. The most common issue tends to be the qualifying ratios for retired borrowers. Because most of their income has been reduced to meet their long term needs, senior homeowners have always tried to find a product that would suit their needs. The latest version of the Reverse Mortgage program has developed into a Hybrid of previous versions, which helps the senior homeowner who truly qualifies for and needs a Reverse Mortgage. Educating yourself as a potential suitor for a Reverse Mortgage has become more accessible through the abundance of information providers and Reverse Mortgage lenders. As always, an educated and informed consumer will always end up in a better financial position, so be sure to do your homework.