Reverse Mortgage Pitfalls

Monday, April 21, 2008

A Reverse Mortgage has been a great financial tool for seniors across the nation. Many people feel that sometimes it just sounds too good to be true. Here are some Reverse Mortgage Pitfalls and Disadvantages.

The biggest and most talked about pitfall is that: Reverse mortgages don't come cheap! You'll accrue interest on the loan plus closing and service fees, as well as continuing insurance costs.

That may not be a problem if you stay in the house a long, long time. But if you die or sell your digs within a few years of taking out the reverse mortgage, those fees will have eaten up a decent slice of your home equity.

You should also know that the interest rate and the fees you pay can vary enormously depending on which reverse mortgage lender you go to, as can the size of the payment you receive. Which makes it critically important that anyone considering a reverse mortgage take the time to compare the rates, terms and fees offered by several different lenders.

Some of the major fees are:

Closing costs: Reverse Mortgage closing costs are going to be a lot higher than your traditional forward mortgage and equity loan products.

Taxes: Everyone has to pay takes, but a large percent of homeowners have taxes and insurance escrowed into their mortgage payment by their lender. Reverse Mortgage borrowers have to plan ahead to pay taxes every year.

Home Maintenance and Repairs: Again this is a common requirement, but many need to understand that you must still maintain and repair your home while utilizing your reverse mortgage.

Interest Rates: Reverse mortgages are adjustable-rate loans, with a life-time cap. Interest rates can climb. Your home's value can change, as can your health and your ability to continue living in your home. Please check with your Reverse Mortgage Lender for how your rate is setup.

There are many benefits of a Reverse Mortgage. But it is good to also know pitfalls and other disadvantages. If you have anymore questions, please call 1-888-973-8377 at anytime.