Beware Of Reverse Mortgage Pitfalls

Reverse mortgages have been gaining in popularity in recent years for homeowners that are at least 62 years of age. These homeowners are able to secure a loan using a portion of their homes equity as collateral. This allows them to convert their homes equity into usable cash without actually selling their homes. Although this sounds enticing, homeowners should be aware of the reverse mortgage pitfalls that exist. How they work often puts the homeowner in danger.

The reverse mortgage was designed to assist older citizens that are cash poor, that have a significant amount of equity. The homeowner is able to use the tax free money while still living in their home. The loan is not repaid until the homeowner is not living in the house and it is sold. The amount of the loan plus any loan costs, including interest is paid to the lender. Anything that is left will go to the homeowner or the estate. The homeowner that is considering a reverse mortgage must be aware that their children's inheritance may be greatly reduced.

Another of the reverse mortgage pitfalls is the charges. In order to initiate the reverse mortgage the homeowner will likely be charged an initiation fee as well as well as an appraisal fee. There will also be fees for the credit report and home inspection. These fees usually are in excess of a thousand dollars.

The amount of a reverse mortgage is dependant on the homeowners' age, the value of the home, the amount owed on the home and any other loan costs. In a nutshell, the more value your home has and the older you are, the more money you are eligible to access. There are three different ways to receive the funds; It can be disbursed in a lump sum, a credit line or monthly payments. A mortgage calculator will help in this situation.

Another of the disadvantages of a reverse mortgage is that many seniors are fortunate enough to own two homes. Even though one of the homes is only used occasionally, the initial home that a reverse mortgage was taken on might not be considered a primary residence by the lender. Additionally, if the homeowner finds it necessary to move to an assisted living or other facility, the lender won't consider the home to be a primary residence. In both examples the homeowner would be required to repay the loan amount and any additional fees.

While a reverse mortgage may work for some people, it is not an ideal solution for many homeowners. There are many disadvantages that must be considered carefully before making any final decisions.

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