Reverse Mortgage Disadvantage #1: It is a loan and it has to be repaid when the senior moves or pass away. All banks and lenders are in business to make money. A reverse mortgage lender is no different. When they lend you money, it has to be repaid plus interest in it. This is a business transaction, you get the fund, the bank puts a lien on your home, the lender gets a guarantee that they will be repaid when you move or pass away.
But, in the case of a reverse mortgage, the lender must wait for payments of any kind until you sell the home, refinance, or permanently leave the home (i.e. pass away). It is a business transaction: you get the money, the lender gets a guarantee that they'll eventually be repaid.
Reverse Mortgage Disadvantage #2: If you get a reverse mortgage, you will have less equity in your home than if you did not get one. A reverse mortgage enables you to access a portion of your home equity. Your home equity is the difference between the value of your home and how much (if any) you owe on it..
Reverse Mortgage Disadvantage #3: Reverse mortgages are more expensive than traditional home loans. The reverse mortgage lender, not you, is taking on the risk that you live to be 100 years old because, for that entire time, they cannot ask for a payment from you. That is a big risk for the lender and so like any good investor, they must get an increased return on their money (that they lend to you) in exchange for the greater risk.
Reverse Mortgage Disadvantage #4: Your friends or advisors may call you crazy. "You'll lose your home! You're giving it to the bank. It's a rip off. Bad idea. You'll regret it. They're only for poor people. Only if you have no heirs." Many myths and misperceptions, however vague and unfounded they might be, abound with reverse mortgages, causing normally sensible people to erupt with objections at their mention. While it is true that the program is not for everyone, if you have some reason for considering it, then the smartest approach is to investigate it for yourself and then decide.
Reverse Mortgage Disadvantage #5: You are charged interest on the money that you receive. Most Lenders charge a variable interest rate like the 1-Yr Terasury Bill or the London Interbank Offered Rate (LIBOR), plus one to three percent onto your rate. Its best to ask for a fixed interest rate. Interest is not paid out of loan disbursement, but instead compounds over the life of the loan until its pay off.
Reverse Mortgage Disadvantage #6: You usually need a lot of equity to qualify for a reverse mortgage. Reverse mortgage lenders do not offer you the full amount that your house is worth - after all, they're not buying your home. They need to leave plenty of room for interest to be added to the principle balance of the loan, so that it will not get too close to the value of the home in the future. After they do the math, this means that reverse mortgage lenders will usually only offer between 30% and 80% of the value of your home (80% is very rare). The exact amount depends on your age and which program you choose. Since reverse mortgages must first pay off any existing mortgages, if you have one that exceeds the amount you qualify for, then you will need to make up the difference using your savings.
Reverse Mortgage Disadvantage #7 If you get a Reverse Mortgage, you will have less equity in your home to pass to your heirs. It gives you access equity in your home, you will have less equity left in the future. Also interest will be added to your loan balance, reduces your home equity even more. Before you apply, you should communicate with your heirs.
Before you apply for the Reverse Mortgage program, make sure you understand it and review all the alternative options. Your home is your number one asset, don't use the equity lightly.
But, in the case of a reverse mortgage, the lender must wait for payments of any kind until you sell the home, refinance, or permanently leave the home (i.e. pass away). It is a business transaction: you get the money, the lender gets a guarantee that they'll eventually be repaid.
Reverse Mortgage Disadvantage #2: If you get a reverse mortgage, you will have less equity in your home than if you did not get one. A reverse mortgage enables you to access a portion of your home equity. Your home equity is the difference between the value of your home and how much (if any) you owe on it..
Reverse Mortgage Disadvantage #3: Reverse mortgages are more expensive than traditional home loans. The reverse mortgage lender, not you, is taking on the risk that you live to be 100 years old because, for that entire time, they cannot ask for a payment from you. That is a big risk for the lender and so like any good investor, they must get an increased return on their money (that they lend to you) in exchange for the greater risk.
Reverse Mortgage Disadvantage #4: Your friends or advisors may call you crazy. "You'll lose your home! You're giving it to the bank. It's a rip off. Bad idea. You'll regret it. They're only for poor people. Only if you have no heirs." Many myths and misperceptions, however vague and unfounded they might be, abound with reverse mortgages, causing normally sensible people to erupt with objections at their mention. While it is true that the program is not for everyone, if you have some reason for considering it, then the smartest approach is to investigate it for yourself and then decide.
Reverse Mortgage Disadvantage #5: You are charged interest on the money that you receive. Most Lenders charge a variable interest rate like the 1-Yr Terasury Bill or the London Interbank Offered Rate (LIBOR), plus one to three percent onto your rate. Its best to ask for a fixed interest rate. Interest is not paid out of loan disbursement, but instead compounds over the life of the loan until its pay off.
Reverse Mortgage Disadvantage #6: You usually need a lot of equity to qualify for a reverse mortgage. Reverse mortgage lenders do not offer you the full amount that your house is worth - after all, they're not buying your home. They need to leave plenty of room for interest to be added to the principle balance of the loan, so that it will not get too close to the value of the home in the future. After they do the math, this means that reverse mortgage lenders will usually only offer between 30% and 80% of the value of your home (80% is very rare). The exact amount depends on your age and which program you choose. Since reverse mortgages must first pay off any existing mortgages, if you have one that exceeds the amount you qualify for, then you will need to make up the difference using your savings.
Reverse Mortgage Disadvantage #7 If you get a Reverse Mortgage, you will have less equity in your home to pass to your heirs. It gives you access equity in your home, you will have less equity left in the future. Also interest will be added to your loan balance, reduces your home equity even more. Before you apply, you should communicate with your heirs.
Before you apply for the Reverse Mortgage program, make sure you understand it and review all the alternative options. Your home is your number one asset, don't use the equity lightly.
About the Author:
Learn more about Reverse Mortgage Disadvantage. Stop by Paul Hong's site where you can find out all about Reverse Mortgage Loan and what it can do for you.
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