What Is A Reverse Mortgage?
Potential Disadvantages
- The counseling is mandatory and there is no opting out. Every potential borrower must go through counseling. This adds time and cost to the process. However, these are complex loans and this is a measure of consumer protection. You pay for this counseling whether or not you choose the get the loan.
- The loan has to be repaid when you die, sell your home, or no longer use it as your primary residence. While the lien does not attach to your heirs, repayment of a reverse mortgage can be done by refinancing the reverse mortgage, or repayment with the sale of the home.
- There are caps on how much you can borrow with most reverse mortgage programs.
- Repaying the loan: Unlike a forward mortgage with a monthly interest payment, the interest on a reverse mortgage isn’t tax deductible until the loan is paid off.
- Terminology: A lot of real estate terminology is used when referring to a reverse mortgage. You’ll hear it from your reverse mortgage counselor, lender, financial advisors and family members.
- Fees: As with any loan, there are fees. The good news is that you usually can pay the fees with the loan itself, which many borrowers choose. Also, the Federal Truth in Lending Act requires reverse mortgage lenders to fully disclose all of the costs and terms associated with the reverse home equity loan.
- Property tax and insurance: You are responsible for paying for your property tax and insurance. You can always use the money from the reverse mortgage to pay for it. If you fail to pay your property tax and/or insurance, you may be required to pay back the loan earlier. Currently there are no escrow accounts available for payment of taxes and insurance as there is with the forward mortgage.
- Age: Reverse mortgages are limited to those who are 62 years old or older. Unfortunately, if you’re 61 and ½, you still will not qualify for the loan.
|
