Dangers of Reverse Mortgages
Dangers of Reverse Mortgages - Repayment and Forfeiture
Most, if not all reverse mortgages will not require you to make payments or repay the loan for as long as you live. Once you pass on your heirs will have the opportunity to re mortgage the debt or sell the house and repay the loan. If the home has equity above the amount owed to the bank your heirs will receive those proceeds. If the equity is below the amount owed your heirs have no obligation to repay the debt, but they will forfeit the home unless they pay the amount owed. However FHA rules state: "When you sell your home or no longer use it for your primary residence, you or your estate will repay the cash you received from the reverse mortgage, plus interest and other fees, to the lender." The danger here is "no longer use it for your primary residence.
Reverse Mortgages - High Fees
One danger of a reverse mortgage is paying high fees or not getting the best rate on a adjustable rate mortgage (ARM). Many reverse mortgages are adjustable rate mortgages.There are many dangers in these type of mortgages, when trying to buy a home. The same problems can apply for reverse mortgages as for
traditional mortgages. You can be risking your security with the uncertainty of a reverse ARM. Also negotiate the fees and closing cost with different lenders.
Dangers of Reverse Mortgages - Reduced Net Amount to you
Another danger of a reverse mortgage is the amount you will receive will be less the taxes, insurance, and fees that are usually paid into an escrow account when you pay your mortgage. With a reverse mortgage, it actually works in reverse. In comparison, with a traditional mortgage fees are added to the amount you have to pay. With a Reverse Mortgage the fees are subtracted from the amount you receive. Therefore, reducing the net amount of the money you'll get each month.
Dangers of Reverse Mortgages - Home must be Retained as Primary Residence
Another danger of a reverse mortgage goes to the actual structure of the loan. As it is stated in most of the loan documentation, you will retain use of your property as long it is your primary residence. The problem is that, as reverse mortgage holders are senior citizens, the possibilities exist either the purchase of a second home in a warmer climate or the possibility that you may be confined to an assisted care facility. Both situations will default the terms of the loan and the home must be sold.
Dangers of Reverse Mortgages - Financial Security
Another danger of reverse mortgages once the payments stop and emergencies occur, will be have funds to cover these unforseen situations.Take into account the future and remember that the money from the reverse mortgage could allow you to keep your independence at home should you or your spouse's health take a turn for the worse in the future.
A Reverse Mortgage
is a special type of home loan that lets a homeowner convert the equity in his or her home into cash. The equity built up over years of home mortgage payments can be paid to the homeowner: in a lump sum, in a stream of payments, or as a supplement to Social Security or other retirement funds. But unlike a traditional home equity loan or second mortgage, no repayment is required until the borrowers no longer use the home as their principal residence.
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