Reverse Mortgage Pros and Cons

When faced with limited income and other limited resources, a reverse mortgage may appear to be the only answer for seniors to remain in their homes. Seniors need to be made aware that there are reverse mortgage disadvantages . Advertisements are geared towards the perceived benefits of reverse mortgages but not the disadvantages. Seniors should research reverse mortgage disadvantages with the same scrutiny that reverse mortgage lenders are researched. Although each individual situation and circumstance varies, there are some disadvantages that apply to all borrowers. Discussed are a few of the disadvantages associated with reverse mortgages.

Key To Understanding Reverse Mortgage Disadvantages

The eligibility requirements for a reverse mortgage are few. One of the eligibility requirements is that the loan is based on the age of the youngest borrower who must be at least age 62. This is a disadvantage when the older borrower survives the younger borrower. Both spouses also must be listed on the title to the property. If a surviving spouse is not listed on the title to the property, there are no loan provisions made in order for the surviving spouse to remain in the home. The type of property is another consideration for eligibility. Not all property will be eligible. If the property is eligible and has sufficient home equity, the loan is further limited to the property value. Property appraisals must be performed by a FHA-approved appraiser. The borrower(s) must attend a counseling session before the lender can begin to process the loan. The counseling agency must be a HUD-approved counseling agency. Seniors who are disabled or who receive social security income do not qualify for reverse mortgages. Many seniors depend on need-based government programs, such as, Medicaid. Continued eligibility for need-based assistance can be adversely affected by the amount of money withdrawn from a reverse mortgage. These are just some reverse mortgage disadvantages.

High fees, such as, closing costs, FHA mortgage insurance, loan origination fees, property appraisal, wire transfer fees, and counseling fees are known reverse mortgage disadvantages . Title fees also contribute to the mountain of fees to be paid. Not all fees are paid out-of-pocket. Almost all fees are written into the loan. Lower-valued homes tend to have higher closing costs.

Do You See Any Reverse Mortgage Disadvantages?

Interest rates are not high, but FHA mortgage insurance adds to the amount of interest stated for the loan. Interest accrues and the loan balance continues to grow since there are no monthly payments. The interest is not tax deductible until it is paid. Borrower(s) are required to remain current and continue to pay property taxes and property insurance.

Any payment that is made to the borrower(s) depends on the available proceeds from the reverse mortgage after any mortgage payoff. Reverse mortgages are designed to eliminate mortgages, and are not necessarily geared to provide seniors with additional funds that may be used as monthly income.

Carefully weigh the advantages and the reverse mortgage disadvantages. The counseling session should provide opportunities to ask questions and to gain more clarity. After closing, there are still three business days in which the application can be canceled. Find more reverse mortgage pros and cons here.