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Posted: 6:00 a.m. Tuesday, April 1, 2014

Pros and cons of reverse mortgages for seniors

ClarkHoward.com is no longer recommending Reverse.org

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By Clark Howard

ClarkHoward.com


Reverse mortgages remain a popular lure for cash-strapped seniors, but what's good in theory is often abysmal in execution.

A reverse mortgage allows someone who is "house rich and cash poor" get a payment from their lender in exchange for the bank getting the equity in the house over time. It allows people stay in their homes and have their bank pay them to stay in their home.

But what's good in theory is often dangerous in reality because of some unsavory players in the mix, especially unholy alliances of mortgage brokers and insurance salespeople. When doing a reverse mortgage, you can either take a check every month from your bank or take a lump-sum cash out. The real danger comes with the latter.

Taking a lump sum cash-out option puts you right in the crosshairs of sleazy insurance salespeople who will push a series of annuities on unsuspecting seniors. This is just an absolute, horrific abuse of trust and of that senior citizen.

Here's the thing. If you have an elder, you need to get a little nosy. While you're busy with your life, somebody could come along and eviscerate their finances if you're not careful. Consumer Reports puts it bluntly: "Reverse mortgage should only be a last resort for seniors who want to stay in their homes and have no other alternatives."

I agree wholeheartedly. A reverse mortgage should be the last option, not the first, when all else has been exhausted. If you're talking about a family with younger members of means, it is generally better to have them financially help out aging relative than to have a broker or salesperson take advantage of the senior with a reverse mortgage.

ClarkHoward.com is no longer recommending Reverse.org.

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