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Home Mortgage Preparation :: Disadvantages of Reverse Mortgages
Disadvantages of Reverse Mortgages:
Reverse Mortgages Have Their Disadvantages
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If you are over age 62 and have equity in your house, a reverse mortgage might sound intriguing, but you need to be aware of the disadvantages of reverse mortgages.
With a reverse mortgage, you get to convert the equity in your house to cash and you don't have to make interest or principal payments during the life of the loan.
The catch is that the loan costs can be steep. Also, interest is added to the principal, making them "rising debt" loans. Essentially, the bottom line is that reverse mortgages are an expensive option that may prematurely deplete your home equity.
So, before you choose a reverse mortgage, you need to evaluate a number of factors, including your health, your spouse's health, other sources of income, local laws and the drawbacks of reverse loans. What are some of those drawbacks and disadvantages of reverse mortgages? To learn, keep reading.
Reverse Mortgages Drawbacks
Lump Sum Payment Could be Considered Income
While the lump sum payment you receive from a reverse mortgage is tax free, it can still possibly be considered income by other state and federal programs. For example, the income you receive could impact you or your spouse's eligibility for Medicaid.
Laws are Different for Reverse Mortgages
Depending on the laws of your state, a reverse mortgage may not enjoy the same home-equity protection that would otherwise apply against creditors.
So, before you sign over your home, make sure you understand your local laws and how much of your equity in your home that you'll actually retain.
Homeowners are advised to consult a local real estate lawyer before signing anything.
Limited Inheritance or Legacy for Heirs
One of the major disadvantages of reverse mortgages is they're just not the right choice if you want to leave your house to your heirs. Basically, when you die, your home or the amount of equity in your home owned by the loan company will pass to them and not to your children or beneficiaries.
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Home-Mortgage-Preparation.com :: Disadvantages of Reverse Mortgages