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What About Reverse Mortgages?

I see commercials on TV for reverse mortgages. What are their pros and cons? 

Let's face it: everything about reverse mortgages can't be spelled out in a 60-second TV commercial. And commercials tell you about the pros and never the cons about a reverse mortgage. And there are reasons you don't want to choose the reverse mortgage option, but there are also reasons you do want to choose a reverse mortgage. It's complicated. In fact, it's so complicated that elder law attorney Martha Patterson sums up the reverse mortgage issue with this sentence: "it can be a blessing and it can be a curse."


So how is a reverse mortgage a blessing? Yes, you can get money for that cruise around the world or to pay for your grandchild's college. And yes you can defer payments. But how is it a curse? It's a curse when you consider the cost of getting the loan and the reality that someday the money does have to be repaid with interest.


Are you familiar with the Rule of 72? The rule of 72 tells you how long it takes for money to double at a particular interest rate. For example, if you have a loan with an interest rate of 6% you divide 72 by 6 to get 12 and 12 years is the time it takes for money to double at 6% interest. 


How does this apply to a reverse mortgage? Well, if you choose not to make any payments at all, and your reverse mortgage of say $100,000 has a 6% interest rate, if you have to pay back the reverse mortgage in 12 years your bill could be $200,000 or double the amount of equity you tapped from your home.


Here are some thoughts from elder law attorney Martha Patterson about reverse mortgages:


Always ask how is the loan money going to be paid back and who is going to pay it back? If there are heirs, do they realize that their equity in the home can be reduced or lost to a reverse mortgage plan? Do the children and heirs care about the remaining equity or could they pay for some bills to preserve the home equity? 


Typically your children will sell your house to pay the loan or pay the loan back themselves and then keep the house, says Martha Patterson. 


Elder law attorney Martha Patterson offers a free consultation and $500 off any paid services when you contact her at her website www.ElderLawMom.com and this is something you shouldn't put off.   

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