For years, reverse mortgages have been sold as a way for cash-strapped seniors to get some extra cash. But falling home prices, lending rules and growing instances of fraud could make these loans an incredibly risky proposition for some borrowers.
With a reverse mortgage homeowners 62 years of age or older can convert the equity in their home into a loan that they won't have to pay back until they either die or move out. If they move out, the borrower either has to cough up the cash or sell the home, a move so difficult in today's housing market that they could end up facing foreclosure
Here's what you or your parents should consider before getting a reverse mortgage.
Can you afford to stay in your home - as long as you live?
Once you take a reverse mortgage, the bank expects you to maintain the house. That may not only become difficult physically, but financially as well.
"The problem is that if you can't afford to maintain the house, then you probably can't afford to move either - unless you're sure that your home will be sold before the bank moves to foreclose. (If you move to a nursing home, you have up to a year to return to your home.)
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