subject: Reverse Mortgage Disadvantages [print this page] Author: Ken Solstad
Finding lenders online who will tell you the many advantages of a Reverse Mortgage is easy. But what are the potential disadvantages? A Reverse Mortgage can provide emergency funds when you need it, but make sure to do your homework before applying for a one. While there are literally hundreds of reverse mortgage websites outlining the many advantages of a reverse, it is important that seniors are just as aware of some potential disadvantages. If your income from retirement no longer covers your expenses, current mortgage payment or you'd simply like to secure your retirement years a bit more, you can use the equity in your home to apply for a reverse mortgage if you meet the following criteria. The youngest borrower must be age 62 or older, live in the home and either own your home outright or have a low enough mortgage balance that can be paid off at closing with proceeds from the reverse mortgage. Also, one must receive consumer protection information from a HUD approved counselor before obtaining the loan. What are the Disadvantages of a Reverse Mortgage? Closing costs are substantial. While the fees are similar to a traditional FHA mortgages, Reverse mortgage fees include mandatory FHA insurance of 2% of your homes value plus origination fees that range between $2,500 and $6,000. Fees are most often rolled into the loan and not paid upfront. Because HUD is the program administrator, all fees are fixed. Unfortunately, you may be approached by financial advisors who want to charge you for advice about reverse mortgages or sell you a reverse mortgage. Most of the information you need about reverse mortgages can be found online from HUD. Do not apply for a reverse mortgage from any company that is not approved by HUD. It's important to calculate the cost of a reverse mortgage against what you would gain, because once you enter a reverse mortgage agreement, the lender holds title to your home. Get sound advice. Discuss your reverse mortgage plans with legal and financial advisors, and trusted family members, before making a decision. If possible, only work with a large reputable bank that will meet with you and family members face to face. Because home ownership is often a person's most valuable asset and since your equity is now depreciating, obtaining a reverse mortgage is akin to spending money you'd expect to leave to your heirs. Be sure that the older homeowner is thinking clearly when making this decision (no dementia or symptoms of Alzheimer's) because having a sudden influx of cash can be a heady experience and it would be a shame to waste it or become the victim of a scam. BEWARE of any lender or adviser that suggests an annuity in any way! Although Social Security and Medicare are not affected, Medicaid and other need based govt assistance may be affected if too much funds are withdrawn and not spent in any one month. Since your equity is declining, obtaining a reverse mortgage may prove to be a hindrance to moving to a new home in the future. If you are considering a reverse mortgage, it's important to get as much information as you can, and to consider all of your options. There's a wealth of free information to help you decide. http://www.reversemortgagetoday.org/Rev_Mortgage_Disadvantages.html About the Author:
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