The massive amount of recent advertisements for reverse mortgages may be tempting - but the negatives of a reverse mortgage can have far reaching consequences to consider.
The important thing to remember is even if the negatives of a reverse mortgage do not impact you directly, they can be extremely difficult for your survivors - or even for you if you choose to ever leave your home. A reverse mortgage is different from a regular mortgage or home equity loan in that there are no payments to consider - there will not be a bill hanging over your head after you receive your money. But you will be losing equity in your home, something you do need to think about.
Reverse mortgages have yet to catch on in the same way that second mortgages and other loans have, so fewer people are truly aware of what happens when you get a reverse mortgage. These mortgages only comprised .7 percent of all mortgages in the US last year - a very small portion of the mortgage world. What happens in a reverse mortgage starts out simple - a lender agrees to pay you monthly payments in cash or available money, in effect purchasing the equity of your home from you in payment installments.
In this way, the negatives of a reverse mortgage do not seem so obvious. You are getting money, not having to borrow against your home, and you cannot be kicked out of your home for non-payment of a loan. Unfortunately, there are hefty fees levied against your equity, meaning you actually will get less money via payments than your house is worth. Additionally, you will be leaving your family with a debt if you pass on - one that will require them to take action.
If a family member gets left your home or property that has a reverse mortgage, they will be required to either pay back the money you received in order to keep the home, or sell it in order to get what ever remaining equity is left in the home and pay back your mortgage. Additionally, they are forced to go through many hoops and may not be able to actually live in the home, which can be a difficulty for some families.
It is important to think about all of the ramifications of the reverse mortgage before choosing this way to get additional money. The negatives of a reverse mortgage can outweigh the positives, making this a less than ideal choice for your family.
About the Author
Barry Waxler writes about the disadvantages of a reverse mortgage at UFCAmerica.com.
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