Reverse mortgage pitfalls Print E-mail
Reverse mortgage may be a great opportunity for senior citizens to be able to afford a good lifestyle. Unfortunately, not everything about reverse mortgages is good. One should be aware of the pitfalls associated with reverse mortgages. The first of the many reverse mortgage pitfalls would be the fact that the age of the youngest borrower is considered while calculating the amount of the loan. It has been found that the older the homeowner is, the better a deal in reverse mortgage he/she can get. So if a couple is availing a reverse mortgage, the age of the younger member will be considered, thus it is definitely going to be a worse of deal that it would have been if the older member had borrowed as an individual. The second of the reverse mortgage pitfalls is the high interest rates that are levied on the loan amount. It has been found that the rates are usually steep. Also, service fees which are charged have also been found to be quite high. The fees can run into thousands of dollars, even for a small amount of loan. Couple these with the taxes that you have to pay, the insurance costs for the property as well as the costs incurred to maintain and upkeep the property. It has been found that at the end, the cumulative expenses for the property comes up to be equivalent to the monthly loan advance that you will get by reverse mortgage. In some cases, it might be higher. So please do your calculations properly before taking up a reverse mortgage. Another one of the possible reverse mortgage pitfalls could be that in many cases the lender takes certain equity in the property value. This point may be very important if the property value increases drastically over a period of time. If the lender has taking a part of the equity, then part of these property value gains from the sale will go to the lender which rightfully should be going to your heir after repayment of all outstanding reverse mortgage loans. Last but not the least of the reverse mortgage pitfalls would be the reduction of home equity. As the homeowner debt increases, his/her home equity keeps decreasing till the time it becomes zero. So homeowners, in this case, will not be able to pass on to their heirs the property that they owned. Thus we see that reverse mortgage pitfalls need to be noted and other options to be weighed before taking a decision. Alternatives like selling off the property, keeping the money in an interest bearing instrument and living in senior citizen quarters may be a better option for some.


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