Reverse Mortgages Disadvantages


Authored by Rodney Southern in Mortgages 
Published on 01-17-2009

Reverse mortgages disadvantages are many; although they may seem like a good deal you should beware of some of the pitfalls that people who are trying to sell you products in order to make a profit may not tell you. Beware of reverse mortgages disadvantages so you can make an informed decision on whether or not reversed mortgages are for you.

The first of the reverse mortgages disadvantages is that reverse mortgages drain equity from your home. If your house was fully paid for it may be an unpleasant surprise when it comes time to leave a legacy to your children and your home is your primary asset. Also, if you ever decide to sell your house and you’ve taken a reverse mortgage on it, it’s likely that you’ll be very disappointed to learn that it’s worth less than you thought it was due to owing money on a reverse mortgage. While reverse mortgage companies try to make it seem like they’re giving you access to your own money through a house, what they’re really doing is providing you with a monthly loan that’s secured by the equity in your house. At the end of the loan terms, you or your heirs have to repay the money and that comes out of the value of your house.

This brings us to the next of the reverse mortgages disadvantages: reverse mortgages cost you money just like any other loan. It may seem like you’re getting money for free every month, but again, this product is a loan and charges interest like any other loan. If you borrow, say, one thousand dollars a month for three years, at the end of that term you’ll owe not thirty six thousand dollars, but thirty six thousand dollars plus whatever interest rate the reverse mortgage charges. This is no different than a credit card, home equity loan or any other kind of loan.

Another of the reverse mortgages disadvantages is that reverse mortgages cost more than regular mortgages. Because most reverse mortgages do not pay off to the lender until the borrower dies, the lender has uncertainty about when its investment will pay off. To make up for that lenders frequently charge higher interest rates and extra closing costs.

Yet another of the reverse mortgages disadvantages is that reverse mortgage products tend to attract hucksters as salespeople. They are products that are specifically designed to prey on the fears of elderly people and many of the salespeople will use these fears to their advantage and try to talk you into signing up for one without investigating it thoroughly or offer you promises they can’t deliver on, thus baiting and switching. If you think a reverse mortgage is a possibility for you, go to trusted lenders rather than whoever advertises the very lowest rate. The truth is that even with reverse mortgages disadvantages, there are some cases where reverse mortgages can be a good idea.


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