Why does it seem that no one will tell you the disadvantages of a reverse mortgage? Most likely, the salesperson is afraid that if they tell you the negatives, you may not want the loan any longer. This article will present the top disadvantages in an easy to follow way.
1. Mortgage interest write-off “goes away”:
a. With a reverse mortgage, monthly payments are not a requirement. Because of this, you are not paying interest. Most people do not make payments for many years, but if you choose to, you will get the write off.
b. No house payments probably outweighs the value of an interest write off. Consult a tax professional if you are concerned about the impact this may have on your tax returns.
2. The mortgage balance in going to increase.
a. Interest accrues on a reverse mortgage. Let me say it so it is very clear. Your mortgage balance will increase as the months go on. Since you are not making payments, the interest that is being charged to you has to go somewhere. Your loan balance will continue to grow, as the lender adds the accrued interest to your balance.
b. It is very common for a reverse mortgage to be paid back after the borrower has passed away. Since you haven’t made any payments for several months or even years, you have successfully deferred the mortgage payments indefinitely, trading no payments today for a larger payoff tomorrow.
3. Fees associated with reverse mortgages are very high.
a. If you compared the fees of a reverse mortgage to other loans, you may have noticed that they were more expensive. This was justified by the fact that your “regular” loan has monthly payments and the reverse mortgage does not.
b. The fees have been drastically cut with the new loan options available. If it has been a while since you looked into the loan, it is time to check into it again. The reverse mortgage is much more affordable today.
4. It is likely that your children will receive less inheritance.
a. You are bequeathing less money or equity if you do a reverse mortgage. After all you are spending it when you do the loan. If your goal is to leave a chunk of money to your heirs, this is an important fact to know.
b. Why should you feel guilty spending your equity? It is yours isn’t it? Your alternative would be to ask for financial assistance from your children, asking them to help with the monthly expenses. Think about it like this; Use your assets for you, and let the children take care of themselves. Leave your heirs an inheritance after you are done with it. It doesn’t make sense to make your life a hardship while saving for them.
Every argument has two sides, and seeing the disadvantages of a reverse mortgage compared to the advantages will allow you to make your decision wisely. Consider what your goals are and consult a loan officer to see what your options are. To take the next step and move forward with your reverse mortgage, just make sure you understand both sides of the argument, and the choice you make will be correct.
I have been originating home loans since 1998, focusing on educating golden-agers about the disadvantages of reverse mortgages for the last many years. Coaching senior citizens regarding the possibilities of an excellent retirement has grown to become my passion. It is incredibly gratifying to point out to a retired person the strategies to make their retirement something they dreamed of.
