Reverse Mortgage Pitfall
Reverse mortgage plans are known to provide financial assistance to seniors who have to live on pension and savings. Reverse mortgage allows borrowers to liquidate the value of their home equity and utilize this as an additional source of funding in order to live their remaining years in comfort. Though there are a number of pros reverse mortgage has in certain situations, there’s a dangerous pitfall too.
If the borrowers die and there is an existing mortgage that has been taken out on the home, the situation may change for the worse for the borrowers’ family members. The ownership of the home will have to be changed and transferred to the beneficiaries, and the mortgage taken out on the equity value of the home would need to be repaid. The beneficiaries would then be given a year to repay the mortgage in full with the corresponding interest that the borrower had agreed upon. Instead of inheriting some funds or assets, the surviving relatives may inherit an outstanding debt burden that now needs to be paid.
It is highly recommended to consult a lawyer or financial advisor in advance, before you plan to take out a mortgage, in order to avoid having to leave your family behind with any debt brought about by the mortgage. There are some necessary precautions that you would need to take in order the mortgage you have taken out would not be passed on to your surviving family.