A reverse mortgage may seem like a golden ticket to financial freedom. But it’s important to understand reverse mortgage pros and cons before signing up because these loans won’t help everyone.

Reverse Mortgage Can Put Cash in Your Pocket

Yes, a reverse loan can supplement your income. The additional funds can give you money to pay medical bills, wipe out debt, or make home improvements. The money should not be used for frivolous purchases and needs to be budgeted wisely.

Cashing Out Home Equity

If you’re house rich and cash poor a reverse mortgage can help you cash out some of your home equity. The amount you can borrow depends upon your age, home value, and current mortgage rates. The older you are and more your home is worth, the more you qualify to get. But one of the cons of these loans is that you generally can’t borrow the full amount of your home equity. Depending upon where you live, the maximum loan amount you can get for a Home Equity Conversion Mortgage (HECM) is $625,500.

Reverse Loan Does Not Replace Retirement Planning

Borrowing with a reverse home mortgage is not a substitute for planning for retirement. If you’ve already saved up for retirement, a reverse loan may simply be another tool on the path to financial freedom. Reverse mortgages won’t make up for not saving over the years, so if you don’t have much savings, you need to be very careful about how you spend reverse mortgage proceeds.

A housing counselor can discuss the best reverse mortgage for your situation, or whether it even makes sense to borrow with one. Keep in mind that depending upon your age, there is a good chance that you may live for many more years and need to make the proceeds from a reverse mortgage stretch a lot longer than you think.

This entry was posted on Thursday, January 14th, 2010 at 10:49 pm and is filed under Reverse Mortgage . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.