Reverse Mortgage Disadvantages
The reverse mortgage is popular among seniors who seek financial security to be able to cater to expenses and bills that are likely to come up in the future such as health care bills, home renovation, etc. It is not only convenient but also a reverse mortgage loan is easy to obtain once they are at least 62 years of age and have a home that has equity.
Seniors need to be Careful and Aware of Reverse Mortgage Disadvantages
Most seniors obtain a reverse mortgage in order to prevent foreclosure on their home due to inability to meet up with the financial commitment of the traditional mortgage. The reverse mortgage is one of its kind that does not put any pressure on the borrowers. There are no monthly payments (principal and interest) involved, but the cash will be drawn on the value of the home.
Even though reverse mortgage provides improved financial security, a comfortable lifestyle, and financial relief for several older Americans, it has its disadvantages as explained below.
- In case the last living borrower dies, the loan has to be repaid before the title of the home can be transferred to the heirs.
- Interest accumulates on a reverse mortgage and cannot be removed from income taxes until its repayment.
- Reverse mortgage payments can affect Supplemental Security Income and Medicaid; consequently denying you of eligibility.
- Due to the reduction in the equity in your home with each payment, there may not be enough equity left for your estate or future needs.
- The reverse mortgage income stops when your home equity term is reached, the home is not your primary residence for 12 consecutive months; the last borrower dies, or you sell your home.
We are always available to exlpaine the disadvantages of a reverse mortgage.
- Before obtaining reverse mortgages, you will be required to attend official in-person counseling sessions or consumer education classes about reverse mortgages from a public agency that deals in reverse mortgage education. The cost per class is around $125.
- In most situations, the home is sold to repay the reverse mortgage, and there might not be any money left for the heirs.
- The upfront costs and interest rate are usually higher for reverse mortgages than the regular mortgage and other equity loans. The upfront fees can accumulate over time.
- The rates of reverse mortgages are variable; in that, they move up and down according to the market conditions.
- When service fees, closing costs, broker’s charges, and insurance premiums are factored into the loan, the borrower will automatically pay interest on them.
- The homeowner still has the responsibility of paying property taxes, insurance, and maintaining and renovating the house in which any failure makes the loan due.
- There is a limit to the amount that can be tapped from a reverse mortgage. The HECM loan is presently limited at $625,500, and your actual loan amount will be decided by a method that factors in the value of your home, the outstanding owing on the home, your age or the age of your spouse (if younger than you), and the current interest rates.
Find out more about avioding Reverse Mortgage Disavantages.