Disadvantages Of A Reverse Mortgage
Mortgage RatesMortgage rates are the percentage of the principal amount of ..... In order to understand the disadvantages of a reverse mortgage, one must understand what a reverse mortgage is and how it operates.
A "reverse" mortgage is a type of home loan you are not required to repay as long as you remain in residence in the house. You can transform the value of your residence into cold, hard cash without being required to move or make a mortgage payment monthly. The funds you receive when you take out a reverse mortgage can be collected in one of several ways. You can receive the entire cash amount as a lump sum. You can receive cash on a monthly basis. You can have a credit line for accessing when and if you need to withdraw cash for expenses. You can also combine one or more of the above three methods.
The money does not have to be repaid until you die-in which case it comes out of your estate. If you decide to sell the home, the loan must be paid back in the same way you would pay off a mortgage. The third case where repayment of the reverse mortgage loan is required is when you move out of the residence permanently. Eligibility requirements for a reverse mortgage are that you are at least 62 years old and that you own the house.
Some of the disadvantages of a reverse mortgage include:
You are using part of your estate during your lifetime with a reverse mortgage. Your heirs will receive less money because there will be a reverse mortgage loan against the house.
A reverse mortgage is usually more expensive than a traditional loan, because instead of paying down the principal which reduces the amount of interest over time, you are ADDING the interest to the principal each month. When the loan is paid off, it includes the principal and the interest for the loan period.
Loan fees are charged to the reverse mortgage loan, which increases the payback amount even more. Interest on this type of loan is NOT deductible on income tax forms until the house is sold. Homeowners are still responsible for all taxes, insurance and other housing related costs, because they still retain ownership in the house.
One final note of importance-only get a reverse mortgage loan from a government backed program. Some of the other companies and individuals are not reputable.
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Disadvantages Of A Reverse Mortgage
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