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Is a reverse mortgage a good debt relief plan?

In later years, individuals who have previously paid all their dues and worked hard all their life can suddenly run into issues of debt. Often late-life debt comes from medical bills, but it could also come from unplanned personal expenses, choices to live a lifestyle that is no longer supported by retirement income or helping adult children or other loved ones with money issues. No matter how the debt situation occurred late-life debt can be vexing.

First, many people in such a position are unable to increase income substantially to deal with debt. After retirement, it can be difficult to get back into the job market, and for some people, it is not physically possible. Second, you might worry about passing on such debt to your heirs. In some cases, you might own your own home or other property outright by this point in your life, and creditors could eventually attack that property, seeking to mandate that it be liquidated to pay debts.

Some people might consider a reverse mortgage in these cases. If you have equity in your home, you can borrow against it to pay off these debts. In most cases, you don't have to pay back that loan immediately or even in your lifetime. Instead, upon your death, the home will be sold and proceeds from that will pay back the loan. Your heirs will receive any difference left over.

But is a reverse mortgage the right debt relief for you? It really depends on your situation and the situation of your family. How much longer do you expect to live? Can a reverse mortgage actually reset all of your debt? Will you be accruing more debt and find yourself back in the situation in a few years? Understanding all your options, including late-life bankruptcy, is important before making any decision about debt relief.

Source: National Caregivers Library, "Reverse Mortgage FAQ," accessed March 18, 2016

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