FDIC Says Reverse Mortgage Can Be Risky
Is a reverse mortgage good or bad? A reverse mortgage is a financial instrument that allows you to take out a mortgage on the existing equity of your home. For those who need cash immediately and don’t want to lose their property, this can seem like a great idea. However, the FDIC has stated that reverse mortgages can be risky. Here’s why.
Reverse Mortgage Pros And Cons
A reverse mortgage means that you no longer own all the equity in your home. If you had full equity in your home — you owned it outright — you will be handing a portion or all of the equity over to the reverse mortgage company. The allure of this is that you will still be allowed to live in your home and you can receive cash stipends or a lump sum in exchange for its equity. The fact that you can get a large lump sum at first is one of the biggest reverse mortgage pros.
But there are reverse mortgage cons, as well: you normally get far less for your home’s value than it is actually worth. If you take a lump sum for your home, you need to start paying back that amount immediately. And if you can’t make those payments, you could lose your home. For those who are on a fixed income, it may be difficult or impossible to make the scheduled payments on a regular basis.
Reverse Life Insurance As An Alternative Option
If you qualify for reverse life insurance, it’s generally a safer option. It does not affect your housing situation in any way. Instead, a life settlement broker or life settlement provider will be able to pay you cash as part of a life settlement if you qualify. A life settlement is when you sell your life insurance for cash. Through reverse life insurance, you can get cash now in an amount larger than the policy’s cash value, but less than full death benefit, rather than getting the full death benefit disbursed to your beneficiaries after you pass.
The life settlement industry is recommended by some states as an alternative method of paying for long-term care, and it is legal in all 50 states. The process is simple and clear and does not involve hefty repayments the way that a reverse mortgage does.