These days, loans are sometimes required in order to have a better life or improved conditions of living. However, traditional loans from banks or mortgages can often leave you more broke than you initially started. In fact, most of them will leave you with nothing if you do not read the fine print or make your payments on time. Now there is a way you can borrow against your house and not have to make payments while you live and it is called reverse mortgage. While this is one of the new trends in which homeowners can make money, there are reverse mortgage disadvantages you need to know about.
10. Don’t Do It If You Plan to Move
In the fine print of a reverse mortgage loan, another clause besides selling the house when you die to pay back the lender is that you will need to pay back the entire amount if and when that place is no longer your primary residence. So, if you move out, you will need to pay your lender back. Do the reverse mortgage only if you plan to live in your house for the rest of your life.
9. Nothing is for Free
You might think that because you don’t need to pay anything while the reverse mortgage is in effect that what you receive is for free. But remember, lenders are all about business and other than paying them back in full, there will be a substantial interest on top of the amount. When you sell the house, make sure your financial house is in order or else you might not be able to make the full payment. Plus, your next of kin should be financially able when you pass so as not to burden them with the reverse mortgage loan.
8. Disadvantage for Low-Income Assistance
In the event that you are seeking aide from the government such as Medicaid or SSI, you might want to rethink getting a reverse mortgage loan as this may affect your eligibility for the assistance. There is a chance that you might not get them as a result of the reverse mortgage loan.
7. The Inheritance of Your Heirs
When you take out a reverse mortgage loan, this may severely affect the inheritance of the people that are in your will or your next of kin. Carefully weigh your options and if you are willing to sacrifice their inheritance in order to receive income from a reverse mortgage loan. Other than that, they might be the ones who will need to pay for the interest in the event that the house is sold below the value it was initially assessed for.
6. Your Home Will Have Less Equity
Since a reverse mortgage loans allows you to get a fraction of what your home is worth, when you borrow against it you will definitely have less equity in the future. With this type of loan, there will also be interest added to it which will also affect your home’s equity. Make sure you investigate first before getting a reverse mortgage loan.
5. Be a Victim of Sales People
The great thing about being a good salesman is that you can sell ice to an Eskimo and that logic also applies to reverse mortgage sales people. What’s worse is that a lot of them do not even know what they are talking about. They will only supply you with keyworkds to get your interest and use tactics to hook you in. Most of the time, the fine print won’t even be showed to you upon signing for the loan. Be smart about it and do your own research first to avoid going to the poor house in the future.
4. Actually More Expensive Than Other Home Loans
The bottom line is, lenders for a reverse mortgage loan charge a very high amount of interest for your home’s equity. It is actually justifiable since the lenders are taking a huge risk and will have to wait many years before you either sell your house or pass on before they get to see their money back. So while you may not be paying any amount for now, you will definitely feel its impact in the future.
3. Reverse Mortgage is Not the Financial Solution
While you might be enjoying the fruits of a reverse mortgage loan now, you need to remember that this will not last forever. Sooner rather than later, the value in which you borrowed against your home will be depleted and the checks will stop coming. Look for other financial solutions first before going for a reverse mortgage loan.
2. High Equity is Need to Qualify
The lenders are not buying your home, you need to remember that. So, in simple terms, your home must have exceptional value and is not tied up in another mortgage which further decreases its equity. The lenders will only usually give you 30% of your home’s value to make room for interest and avoid getting to the actual worth of the house in the future.
1. You Need to Do Your Own Investigation
A reverse mortgage loan is not for everyone, even if you do qualify for it. You will need to assess your financial goals and the reasons why you would even consider this type of loan in the first place. If you have made a well-researched and solid decision about a reverse mortgage loan, then go for it by all means. The worst thing is listening to other people who will either persuade or dissuade you from making a decision that is right for you.