There are a handful of facts to understand regarding reverse mortgages before choosing to get one. In the rest of the article, we will explain the principal 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 decreasing the equity in the house, you may spend most of the value of the home; leaving very little money left for you and your heirs. Nevertheless, you need to remember that a “non-recourse” clause existing in most reverse mortgages prevents either you or your heirs from owing more money than your home is worth.
Furthermore, since you’re retaining ownership of your house, you’re responsible for the main costs associated with maintaining a house: real estate taxes, utilities, insurance and maintenance.
One of the important disadvantages of a reverse mortgage is that some lenders charge inception fees and other closing costs for a reverse home mortgage. Lenders may also charge servicing fees during the duration of the reverse home mortgage. Depending on the lender you choose, the fees may vary greatly. Nonetheless, these costs are previously included in the home mortgage and don’t represent an out-of-pocket cost to you.
Also, the interest rate on a reverse mortgage is not deductible in your income tax until the loan is paid off (in part or whole.) Nonetheless, if you do not need that cash right at this moment, it can become a serious amount of cash available to you when you decide to sell off your house.
Finally, there’s usually a cheaper answer to your financial concerns (refinancing, credit line, etc.) than obtaining a reverse mortgage. Of course, for some people, the benefits evidently surpass the disadvantages of a reverse mortgage.
Several of the benefits are the chance of remaining in your own home, maintaining proprietorship of it and not having to make any monthly payments while you live in it.
To make sure you get the best available deal, apply for a reverse mortgage employing a licensed FHA reverse mortgage broker. A professional reverse mortgage broker will advise you while saving you thousands of dollars at the same time and minimizing the disadvantages of a reverse mortgage.