Disadvantage of a Reverse Mortgage
Reverse mortgages are when lenders pay you monthly a certain amount of money based on the equity in your home. You can receive the money several ways. This money does not have to be paid back until you move, sell your home or pass away. Reverse mortgages have some disadvantages that borrowers should be aware of. It pays to get as much information as you possibly can. Accurate information helps you make an informed decision.
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Fees
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The fees associated with reverse mortgages can be very costly. Fees can be as much as 7 percent of the total amount of the loan. This will vary from lender to lender.
Equity
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The amount of equity decreases every time you receive a payout. The balance you owe increases with each payout, and interest is being charged.
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Purpose
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If you take out a reverse mortgage offered by a state or local government, you have to use the money for a specific purpose such as for tuition or remodeling.
Eligibility
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Reverse mortgages can possibly affect your eligibility for aid from federal and state programs. You must be at least 62 years of age to qualify for a reverse mortgage.
Warning
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When you receive a reverse mortgage, property taxes, insurance and repairs still have to be paid by the homeowner. If these expenses are not handled, the lender can activate the acceleration clause and make your loan immediately payable in full.
Estate
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The estate of the owner as well as his heirs can be affected negatively by a reverse mortgage.
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