Reverse mortgages are becoming very popular in our money needed now society, and for the right situation they are wonderful. Unfortunately, not everyone is set up with the proper situation to benefit from a reverse mortgage, yet that does not stop salemen from trying to sell them one. With that said, there are a number of different reverse mortgage disadvantages that one should consider before getting one.
The first and most obvious reverse mortgage disadvantage is the fact that once you have spent your money, it is gone forever. Of course, down the line if your home appreciates in value, the lender may consider renegotiation, or they may not. Once you recieve the money that the lender deems your home equity to be worth, that is generally it. No second mortgages, and no home equity loans of any kind are allowed as this would change the equity amount that the lender used to figure your reverse mortgage.
Another key reverse mortgage disadvantage is the way that your equity is figured. One must remember that the company lending the money does not get one dime until the property is sold, or otherwise released. (you die) They get no monthly payments, and no funds until the end of your time in the home. With that said, they must charge a bit more than a regular mortgage that gets money each month. Due to this, closing costs may increase, and the full value of your equity in the home is not the amount you will receive. They are not buying the home, rather loaning money on it.
On the whole a reverse mortgage costs considerably more than a regular home mortgage. The risks involved for a reverse mortgage lender are much higher, so your fees and interest are going to be as well. The amount you get for a reverse mortgage is usually much less than a traditional mortgage due to these conditions for the lenders.
Another disadvantage to the reverse mortgage market is the fact that a number of unscrupulous individuals are out there marketing them. The biggest factor here is to ensure that you are dealing with a reputable lender and that they are willing to answer your questions. With something as important as your home, you do not need to be dealing with a discount company. Go with a well established lender that you know is on the up and up.
Reverse mortgage disadvantages sometimes appear to be advantages on the surface. For example, the money is tax-free which is good. The bad part is that the reverse mortgage can possibly affect your standing with Medicare, and other government programs. While the money is nice, it can cost you with some programs if it puts your eligibility out of whack.
The most common reverse mortgage disadvantage seems to be the fact that you can not leave your home free and debt clear for your heirs. This is a big issue with homes that have been in the family for many generations, or people who have a need for the home that can not be paid for by the inheritor. This problem can be offset by savings or other money that is coming in, but the risk of a reverse mortgage is clear in this situation. Things can happen to the most wealthy, and most wealthy people will find a cheaper way to borrow money than a reverse mortgage anyway.
The sheer volume of options and information is another reverse mortgage disadvantage. There is so much to consider that people often get very confused which leaves them open to be taken. For this reason it is very important to secure a lawyer or counselor that can look over the reverse mortgage terms before signing.
Reverse mortgages can be a wonderful solution for somone that is in the right situation, but one must be careful to ensure that they are in that catgory. There are much cheaper alternatives to borrowing money in most cases, and those should always be explored before securing a reverse mortgage home loan.
