Reverse Mortgage Disadvantages
1. Mortgage interest write-off "goes away":
a. You know that form you get each year that says you paid mortgage interest? Well it doesn't come on most reverse mortgages. This is because you have not paid interest, you have just accrued interest. If you do pay the mortgage interest, you will get the write off, but that usually only happens upon the home being sold.
b. Is the interest write off more important than not having house payments? Would you prefer to have the write off or no payments?
2. Accruing interest or your balance growing:
a. You will accrue interest on a reverse mortgage. This means that your balance will grow as the months progress. Since you are not making payments, the interest that is being charged to you has to go somewhere. The lender puts it on the balance you owe them, so it gets bigger.
b. You are exchanging a larger payoff tomorrow for no payments today. Reverse mortgages are usually paid off when the borrower passes away, thereby deferring payments permanently.
3. The fees on a reverse mortgage are expensive:
a. Reverse mortgage fees are expensive when compared to a regular home loan. since there are no monthly payments on a reverse mortgage, but you do have payments on a normal loan, maybe "they" think there is some justification for higher fees.
b. Actually though, in the light of new programs, you should be able to get a reverse mortgage for about half of the prior cost. If expense was the reason you avoided a reverse mortgage, check again. It might surprise you how inexpensive they are now.
4. Less money gets left to you kids:
a. Spending your equity will seemingly reduce the amount of inheritance that is left to your heirs. If you are one of many who wishes to leave a sum a money to your children or grandchildren, this is really important to you. there are probably other ways to leave an inheritance.
b. By using your equity, are you really shorting anyone on their inheritance? Removing your existing monthly payment will allow you to have more cash for things like medical or housing expenses. Because of this, you children are less likely to need to contribute to your monthly bills. Just that alone will help them save for their own retirement, without having to worry about your finances. If you are more fortunate than most, and your home is paid for, using the equity in your home can help maintain your independence and enhance your retirement.
These are examples of the so called disadvantages of a reverse mortgage. You can see that there are two sides to these arguments. So weigh the need against the objection and see if it makes sense to you. If you are looking for someone to bounce some ideas off of, feel free to give me a call or send me an email. You can get all of our contact information at www.redwoodreversemortgage.com along with more reverse mortgage information.
by: David Prulhiere
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