5 Reasons Why You Should Avoid Reverse Mortgages
One of the most recently favored methods to plan one’s retirement that has gained popularity in the last few years is the reverse mortgage. In fact, is is becoming an increasingly reliable idea for many retirees, who get access to the equity of their homes in exchange of receiving a mortgage payment from the bank, turning a home into a steady source of income.
Of course, like so many things that seem to be too good to be true, this is exactly the case with reverse mortgages, which are far from ideal. In fact, whenever possible, you should try to avoid getting a reverse mortgage for your retirement. The most important reason for this is that reverse mortgages are income streams that are in fact, loans against your home’s equity, and as such, has to be paid back sooner or later.
Besides this, here are five more reasons to think twice about it before getting into a reverse mortgage deal:
1. High Fees:
Being a loan, every single cent received from a reverse mortgage will be applicable for loan-related fees. In fact, almost all fees related to a reverse mortgage tend to be quite high. What is even worse for those who “benefit” from the monthly payments: Since a reverse mortgage isn’t decided based upon income or overall credit score, fees also tend to be decided completely arbitrarily. The result of this is that lenders, being faced with potentially high risks, will always compensate for them by charging higher fees and interest rates right from the outset.
2. Higher Interest Rates:
Interest rates for reverse mortgage are more often than not higher than those that apply for traditional home equity loans. In fact, between the reverse mortgage’s up-front fees and the high interest rates charged that we already mentioned, the actual money that you end up getting will not be that substantial. this is why it is extremely important to run down all the numbers before signing up for one of these deals.
3. Do You Plan on Giving Your House to Your Children?:
The moment you agree to participate on a reverse mortgage, you aren’t actually expected to pay monthly installments for the loan. Instead, the loan you get is paid off the moment you sell your home. So for example, if you die or pass away, then your home should then (in theory) be sold in order to cover for the loan amount. Naturally, if this happens, then your children or other heirs will never have your house.
Of course, it is perfectly possible for your heirs to continue paying for the reverse mortgage if you die, but in almost all cases the money for this will come from their own pockets, which will also be also harmful for their finances.
4. You Can’t Move Out:
If you thought that dying was the openly cause for repayment on a reverse mortgage, you were wrong. In fact, if you want to avoid making any payments the loan you are getting, you will have to live on your primary residence most of your time. I for any reason you are considered to have “moved out” or you fail to live in your residence for a year, you will have to start paying for your loan. The “funny” thing about this is that this case applies even if you enter a long-term care facility. So, if for some reason you are unable to stay home but haven’t died, you will then have to start repaying the reverse mortgage you applied for.
5. Home Costs Are Still on You:
One of the most overlooked aspects of accepting a reverse mortgage, is that you will still be responsible for all your home costs. That means you still have to pay taxes on your property, your homeowner’s insurance and of course, all expenses related to your home’s maintenance.
For everything mentioned above, you should carefully consider every aspect of your current situation before deciding to get a reverse mortgage. These could easily be considered as personal loans and involve costs that are even higher. So before taking a reverse mortgage, consider other alternatives like a personal loan or a strict savings plan.