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Disadvantages of a reverse mortgage Print E-mail
Agents who are trying to sell you a reverse mortgage will always paint a very rosy picture and site all the advantages of reverse mortgage. However, since this is a big financial decision, it is important that you think through this and be aware of some of the disadvantages of a reverse mortgage as well. This article is aimed at providing some information about the disadvantages of a reverse mortgage. A reverse mortgage is an agreement where a loan is extended to a homeowner against his home equity. While it is a wonderful opportunity for senior citizens to utilize their home equity to be able to afford a decent living, one also has to be aware that their home equity decreases with time as their debt increases. As the homeowners grow older, their equity will keep getting reduced until a point when there might not have any home equity at all. Please keep this into consideration while taking a reverse mortgage. This reduction in home equity might be suited for some senior citizens who do not have any children or whose children are provided for. In those cases, using their home equity for a decent living is a good option. However, many senior citizens harness the hope to pass on the property to their heir after their death. This might not be possible to be done in case of reverse mortgage as they lose the right to their property with a gradual decrease in home equity. This is another of the disadvantages of a reverse mortgage. Another one of the disadvantages of a reverse mortgage is the associated costs. Many a times, the interest rates are quite high and the homeowners do not get a good bargain in this regard. The interest rate will determine how quickly the home equity will get eroded. Hence, a steep interest rate can be very bad for the homeowners. Also, there are certain associated fees which are charged by the lenders and many a times, these fees are also included as part of your loan to avoid the need for payments at the onset. These fees can also mean additional burden on the homeowner. Disadvantages of a reverse mortgage also include the type of property. Certain types of properties are not eligible for reverse mortgage. Also, reverse mortgage is only on property where the owners are living and cannot be done on rental property or others. This limits the scope as well. So we see that disadvantages of a reverse mortgage are many and you have to be aware of them before taking a decision. It is best to seek counsel and get legal advice before going for reverse mortgage.


 
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