More than likely you have seen ads on TV about the benefits of taking out a reverse mortgage on your home. In order to qualify for this type of mortgage, a homeowner must be at least age 62 and have repaid all or most of the mortgage. While it is very enticing to those who do have a lot of equity built up in their home and are struggling to meet their monthly obligations, taking out a reverse mortgage is something into which you should put a lot of research and thought. Yes, there are advantages, but there are also pitfalls that lenders do not explain to you.
With a reverse mortgage you can take advantage of the equity you have built up in your home by taking the money and not have to pay it back until you sell your home or pass away. This means that there is no way in which you can leave your home to your family because the lender owns the title to the house and the land.
The cost of taking out a reverse mortgage is quite expensive. Generally lenders charge a set fee or a percentage of the mortgage amount, which you will have to pay on your own. You are unable to have it added into the loan as you can with a conventional mortgage because you actually don’t make any payments on the loan as long as you are living in the home. Many people who take out a reverse mortgage either pay this fee in a lump sum from the amount of money they receive or make arrangements to make monthly payments.
There are other fees that homeowners may not be aware of when they take out a reverse mortgage. The homeowner is usually responsible for pay to have the home appraised to ensure that it is worth the amount of money being borrowed. Some lenders will also charge the homeowner for the cost of obtaining the credit report and there may be a title insurance involved just in case there are liens of claims on the home that are not known at the time of the mortgage signing.
The amount of money borrowed in a reverse mortgage must be repaid at some point in time. The loan is not interest free and if the homeowners live in the home for a number of years after they borrow the money, this can add up to a large amount of money. It is possible that when the home is sold the amount may not be enough to repay all the loan, which will put the homeowners in a precarious financial situation. If the estate has to repay the loan after the death of the homeowners, then there may be very little left to distribute to the children and grandchildren.
A reverse mortgage may be good for some elderly people to make their retirement years stress free, but it is not for everyone. You should carefully consider all aspects of such a mortgage before you make your final decision.