The Downsides to Reverse Mortgages

 

At first glance, it may seem like a reverse mortgage is a good option. However, many do not realize their flaws until it is too late. This kind of mortgage is an option for elderly people to create a source of income that comes from the equity in their home that has been built up over time. While yes, it does provide a blessing for some, it can prove to be a less than ideal outcome. There are indeed pitfalls to the concept of the reverse mortgage, so what do you need to know?

 

There are high costs. Despite the fact that the "borrower" is tapping into the equity that is in their home, the banks will have a large initial fee that covers the transaction. As part of the mortgage, the homeowners will likely have to pay an origination fee of a certain percentage of the amount for the loan, often 2 or three percent. The homeowner will also have to pay for appraisal fee, credit report fee, service fees, etc. Each one can be at least a few hundred dollars to a few thousand. This can actually make this mortgage option an expensive mortgage refinance option.

 

Your heirs will likely not get the home. Typically, the grandparents' home is passed onto their kids and grandchildren; however, when the grandparents choose to have a reverse mortgage, that might not happen. The lenders do not obtain the title of the home when the deal is cut but the lenders do often get the home once the mortgagee has passed or moves out of the home. Why is this the case? When the mortgagee passes or moves out of the home that has the reverse mortgage, the total amount is due in full, selling the home to the lenders is how it is paid, typically.

 

It will impact financing. In the future, the finances could look different due to the reverse mortgage. When someone takes out one of these, they create a liability due to the fact that the loan has to be repaid, plus interest. This is due at the time of passing or moving of the person who received the reverse mortgage.

 

It may affect any Medicaid benefits. If you benefit from Medicaid, if there is a receive a reverse mortgage, any proceeds that you get from it have to be utilized as soon as possible. The benefits will be counted as an asset, which can affect your Medicaid eligibility. If you get a big sum of money, you might have to spend it quickly or the money will count as an asset.

 

If you are looking for options to refinance a mortgage from a respected financial services company, then try Truefi – online mortgage broker.