Reverse mortgages may seem like the answer to a senior citizen's prayers for a source of extra income. But there are risks attached, because the money from the reverse mortgage comes from actually withdrawing the equity in your home. Your mortgage gets larger and your equity becomes smaller.
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The reverse mortgage does not have to be paid until the death of the owner or the sale of the property. In either event, the amount of indebtedness on the home has to be paid before you or relatives can receive any of the proceeds from the sale.
If the owner becomes ill and needs money, the equity from the home may already be used up, leaving the owner depending on relatives to take care of him.
Because reverse mortgages are taken out by people 62 and older, new scams are continually being devised to bilk senior citizens out of their homes and their life savings. It is always best to consult a lawyer before signing anything.
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Relatives, too, can take money from you by talking you into getting a reverse mortgage and lending the money to them. When they don't repay you, you are stuck with a mortgage and no equity.
Unfortunately, seniors are at risk for dishonest people to take money from them. Seniors must realize that they must watch out for themselves and their savings, and take the precaution of retaining a lawyer or a financial adviser who has a good reputation.