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Reverse Mortgage Pitfalls: Are You Prepared For The Worst?

Aug 4, 2008
Reverse mortgage pitfalls occur nearly everyday. Are you considering such a loan and if you are have you thought about the negative aspects of such a loan?

Unless God forgot your eyes and ears at birth, you have undoubtedly seen all the ads everywhere from your television set to your local newspaper.

This type of loan probably fits well for many people as I'm certain that is does but there are many caveats that you need to pay very close attention to and be aware of when considering a reverse mortgage loan.

There are many loan programs, over a dozen at the time of this writing, that are designed around the reverse mortgage concept.

Your first plan of action should be to seek out only those lenders who are offering a large selection of these types of loans for you to consider.

If the lender you talk to only offers you a couple of different types of loan packages you need to be very wary as these types of loans are probably designed by the lender themselves and may not offer you the best rates and terms you can find shopping around.

Reverse mortgage pitfalls can be completely avoided by arming yourself will all the facts before you go shopping for one of these loans.

Most often these types of loans are structured around a few basic requirements starting with your age. As an example, HUD requires you to be 62 while more conventional lenders will be willing to loan to younger people.

The pitfall here is that the younger you are the less attractive interest rate you will get which can really hurt you down the road.

Inflation! This ugly fact will never go away. As the cost of living increases year after year will your loan payment increase as well?

Your reverse mortgage contract must include some sort of cost of living adjustment. If it doesn't where do you think your income will put you 10 years from now?

Another reverse mortgage pitfall is that you must be aware that you are required to pay all the yearly taxes on your property. Make sure you figure that into your yearly income as from these loans well.

You must also pay for all the upkeep on your property. Expenses such as HVAC, roofing, plumbing and a myriad of other household expenses need to be included.

Your home owners insurance payments. Your lender will require that you keep up to date insurance on your property as they need to protect their investment. Have you included those costs into your future income forecast?

Finally, you must continue to pay for all the related utility costs to the property. As with the inflation factor previously mentioned, what do you think you will be paying for electricity 10 years from now?

So what is the bottom line? These are but a few of the pitfalls you need to consider when talking with your lender. There are many more and you can find these online if you know where to look.

Take all your cost you expect to pay over the next 10 to 15 years and make sure the contract you agree to will adjust upwards as these costs increase. The power of your dollar today should have the same power 10 years from now.

Reverse mortgage pitfalls? Maybe yes, maybe no. It all depends on how you structure you loan and the knowledge you have about it when that loan is created. Keep in mind that knowledge is power and only you decided how much power you will take to the table!
About the Author
If you might be considering a reverse mortgage and would like to know more about Reverse Mortgage Pittfalls stop by our site at My Mortgage Interest Calculator get all the latest information related to your loan questions.
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