Disadvantages of a Reverse Mortgage: Things to Remember

There’s a handful of things to know about reverse mortgages before choosing to get one. In the remaining of the article, we’ll explain the main disadvantages of a reverse mortgage.

First, most reverse mortgages come with flexible rates. The rates will change as the market indicators change. This can be a disadvantage because of the uncertainty on future rates. Nevertheless, it can likewise work as an advantage if the interest rates go down once you get your reverse home mortgage.

In addition, the fact that interest rates may go up is not as vital as in a typical mortgage because you are not making monthly payments. Interest rates increasing just mean that you may not be able to get as much of a monthly payment or that the equity in the house may decrease quicker than you imagined.

Since reverse mortgages function by reducing the equity in a house, you can use up most of the equity, leaving little money left for you and your heirs. Nonetheless, you need to keep in mind that a “non-recourse” condition found in most reverse mortgages prevents either your heirs or yourself from owing more cash than your property is sold for.

Furthermore, beacuse you are retaining ownership of your house, you are accountable for the major expenses associated with keeping a house: taxes, utilities, insurance and maintenance.

One of the important disadvantages of a reverse mortgage is that many banks charge inception fees and other closing costs for a reverse home mortgage. Banks may also charge servicing fees during the duration of the reverse home mortgage. Nonetheless, these costs are previously included in the home mortgage and don’t represent an out-of-pocket cost to you.

In addition, the interest rate on a reverse home mortgage is not deductible in your income tax return until the mortgage is paid off (in part or whole.) Still, if you don’t need that money right now, it can be a large amount of cash available to you at the time when you sell your house.

Lastly, there is normally a cheaper solution to your financial problems (refinancing, credit line, etc.) than applying for a reverse mortgage. Naturally, for a large number of homeowners, the benefits surely exceed the disadvantages of a reverse mortgage.

Some of the advantages are the chance of staying in your own home for as long as you want, maintaining ownership of it and not having to make any recurring mortgage payments while you stay in it.

To ensure you receive the best bargain available and that you get the smallest fees possible, get a reverse home mortgage using a licensed FHA reverse mortgage lender. A good reverse mortgage lender should educate you while saving you thousands of dollars and minimizing the disadvantages of a reverse mortgage in the process.