Mortagage informatiom centre and much more easy foryou understanding about mortgage: Learn About Reverse Mortgage Disadvantages Before Signing On The Dotted Line

Learn About Reverse Mortgage Disadvantages Before Signing On The Dotted Line

Posted on 02 July 2012.

While you have probably heard a lot of the advantages being mentioned for reverse mortgages it’s time that you learned about the reverse mortgage disadvantages as well. It may seem like an instant solution for your retirement efforts but there are some hidden downfalls to the program. It is important to look at both sides of the coin before making a final decision about a reverse mortgage and whether it really is the best solution for you.
Future debt
One of the big downfalls to this type of mortgage is the effect it can make on the inheritance you leave behind. If something should happen to you before the mortgage is paid off this debt is passed on to your heirs. In the majority of cases this will mean that the home will have to be sold to pay off the mortgage. If there’s anything left over after this mortgage is paid off it will fall into the hands of your heirs, but in some cases there may not be much left behind. Of course, if you don’t have any family that you plan on leaving this money to, or have family that are already very financially secure, this is not an important point that you need to keep in mind. You’ll be able to look at the picture based on your retirement needs only and not on what you will be leaving behind to others.
Remaining in your home
You are not allowed to leave your home until the reverse mortgage has been totally paid off. If you have any uncertainty about the future and where you will be living it would be best to avoid this type of mortgage and play it safe. If you have been thinking of a move you will not be able to leave your home in the near future. You’ll basically have to plan to be committed to staying in your home until the mortgage term is finished.
Reverse mortgages can be quite confusing
Not only are you going to have to learn what your responsibilities are as a mortgage holder you’re going to have to learn what responsibilities the lender will hold as well. You’ll have to choose between different terms and conditions and will want to take a look at the various interest rates. Just like a conventional home loan, there are lots of terms and definitions as well as concepts to learn. You’ll need to be prepared to look at these things in full detail to make sure that you are making the right choice in the end.
It can be costly
Not only can a reverse mortgage be confusing but it can also become very costly as well. There will be loan fees to pay, appraisal fees, insurance, closing costs etc. As well, you will still be responsible for repairs on the home, insurance and property taxes. It’s always advisable to find out all of the hidden costs before setting up an application for the loan. You certainly don’t want to get hit with these extra costs once you have made the decision to go ahead and get a reverse mortgage.
Eligibility for assistance
You should be aware that being accepted for a reverse mortgage might affect your eligibility for state or federal assistance such as Medicare or Medicaid. In some cases it can also affect eligibility for Social Security benefits. You should first find out about the eligibility requirements for any type of assistance you may currently be on or are expecting to receive in the future. These requirements will vary from one state to the next.
Paying off your balance
Another one of the reverse mortgage disadvantages is you will be required to pay off your current mortgage balance when you take out the reverse mortgage. Depending on how much balance is left on your existing mortgage, this may become a big issue. It’s best to look at this type of financial situation with an accountant first before going ahead and signing any type of contract.
The tax write-offs
In most cases you will not end up getting a form every year saying that you paid your mortgage interest. This will only come if you pay the interest on the mortgage, but that happens usually only when the house gets sold. For most reverse mortgages you will not pay interest but rather just accrue it. You really can’t expect any tax relief by taking out this mortgage and again, you’d be better off talking to your accountant about a reverse mortgage and how it will affect your taxes.
In the right circumstances a reverse mortgage can be the best decision to mak