Disadvantages of a Reverse Mortgage

Although there are several advantages to reverse mortgages, there are also disadvantages to reverse mortgages. You have to look at both sides and decide if the advantages outweigh the disadvantages before deciding if a reverse mortgage is for you.

One of the biggest disadvantages of this toe of mortgage is the cost factor. Compared to traditional loans the upfront fees can be quite steep, probably in excess of $10,000. Also begins accruing at the time the first payment is made to the borrower.

Another problem with reverse mortgages is the complexity of the fee associated with this type of mortgage. Some of the fees that may be a part of the reverse mortgage include mortgage insurance premium amount, origination fee, loan closing fee, service charge, shared appreciation fee and shared equity. This is the part of the reason credit counseling is a requirement before allowing an individual to obtain a reverse mortgage. These fees will require careful consideration as to whether it makes this type of financing in your best interest.

You must also be aware of how a reverse mortgage can affect qualification for pensions, health care, or Social Security income. Having a reverse mortgage will most likely not affect Social Security and Medicare, but it will affect some government programs. Your credit counselor can best inform you of what will be affected.

Reverse mortgages will take away from any inheritance you were expecting to leave your heirs. If you were expecting to leave the house to someone the loan will have to be paid off first.

The loan amount is repaid at the time of the sale of the home. If the home is sold for amount less than what is owed on the loan, the mortgage insurance pays the difference. If the home is sold for an amount more than the loan, the excess goes to the homeowner or its heirs.