The Disadvantages of reverse Mortgages

For many seniors who already own their own homes, a reverse mortgage may seem like a great option. Where else can you get a mortgage that pays you? It may especially seems ideal if you are having a hard time making ends meet. Most mortgage companies will try to paint a pretty picture for you of maintaining your standard of living while still retaining ownership of your home. There are some disadvantages, though.

When compared to a conventional mortgages, reverse mortgages tend to be more expensive. The reason for this is due to rising-debt nature of reverse mortgages. In example, typical reverse mortgages may provide the homeowner with a $500 a month payment with a yearly interest rate of 12% compounded monthly. Over 10 years, the homeowner will receive $60,000.00 in payments, but they will owe over $120,000.00, twice as much as received.

Another disadvantage is that reverse mortgages can affect old age pensions, supplemental Social Security income or Medicaid benefits. The homeowner may not even realize it until they have already gotten the reverse mortgage. It can also reverse the value of a senior's assets and their estate.

One other disadvantage is the difficult and confusing contracts. These contracts often allow lenders and third parties that are involved in arranging reverse mortgages to not fully disclose the terms or fees of the loan. These undisclosed fees can very quickly drive up the cost of a reverse mortgage. These fees can include points, origination fees, closing costs, mortgage insurance premiums and many other things.

To avoid getting sucked into one of these, choose lender carefully. Obtain bids for numerous lenders and seek advice from a counselor on these contracts before choosing one.