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Disadvantages of a Reverse Mortgage: Things to Consider

Jul 14, 2008
There are a handful of facts to understand regarding reverse mortgages before choosing to get one. In the rest of the article, we will explain the principal disadvantages of a reverse mortgage.

First, most reverse mortgages come with flexible rates. The rates will change as the market indicators change. This can be a disadvantage because of the uncertainty on future rates. Nevertheless, it can likewise work as an advantage if the interest rates go down once you get your reverse home mortgage.

Anywys, the event that interest rates increase is not as vital because you're not making any type of monthly payments. Increasing rates only mean that you may not be able to get as much of a monthly payment or that the equity in the house can decrease quicker than you planned.

Since reverse mortgages work by decreasing the equity in a house, you can end up using most of the equity of the home, leaving little money remaining for your heirs and yourself. Still, you need to remember that a "non-recourse" clause existing in most reverse mortgages prevents either you or your heirs from owing more money than your property is worth at the time of sale.

Furthermore, since you're retaining ownership of your house, you're responsible for the main costs associated with maintaining a house: real estate taxes, utilities, insurance and maintenance.

One of the main disadvantages of a reverse mortgage is that most lenders charge inception fees and other closing costs for a reverse mortgage. Banks may also charge servicing fees during the duration of the reverse mortgage. In addition, the fees charged may vary greatly depending on the lender you choose. However, these costs are previously included in the mortgage and don't mean an out-of-pocket cost to you.

Also, the interest rate on a reverse mortgage is not deductible in your income tax until the loan is paid off (in part or whole.) Nonetheless, if you do not need that cash right at this moment, it can become a serious amount of cash available to you when you decide to sell off your house.

Finally, there's usually a cheaper answer to your financial concerns (refinancing, credit line, etc.) than obtaining a reverse mortgage. Of course, for some people, the benefits evidently surpass the disadvantages of a reverse mortgage.

Several of the benefits are the chance of remaining in your own home, maintaining proprietorship of it and not having to make any monthly payments while you live in it.

To ensure you get the best transaction, get a reverse home mortgage using a certified FHA reverse mortgage broker. A good reverse mortgage broker can educate you while saving you hundreds of dollars and reducing the disadvantages of a reverse mortgage.
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