Home Mortgage Preparation :: Reverse Mortgage Pitfalls
Reverse Mortgage Pitfalls:
What are Some Reverse Mortgage Pitfalls?
What is a Reverse Mortgage?
Okay, you may have heard of a mortgage, but what on earth is a reverse one, and what are some reverse mortgage pitfalls? Well, let us start with a basic definition of what a reverse mortgage is. This is where you use the equity, the value of your home to secure yourself a constant income.
They are only available to senior citizens, and they work like this: you borrow against the equity of your home, the bank sends you a monthly payment, but so long as you continue to live in the house – you do not owe a dime! When you pass away, the home is sold. The bank then gets back all its money – plus interest, and anything left over goes to your heirs.
What can go Wrong?
It all sounds too good to be true; well, it can be. You do have to watch out for some things; first of, a reverse mortgage does not come cheap. There is the interest you will accrue over the life of the loan, there are closing costs and service fees, and insurance costs that have to be factored in.
Also, once the house is sold, the bank will be taking the lion’s share of the profits. So, that can mean very little for your heirs. In addition, if the home is the family estate and holds any sort of sentimental value for any family members, that can lead to “bad blood.” Finally, there is the issue of the value of the home.
Right now, as we see, the housing market can (and does) go into slumps. This means that one of the major reverse mortgage pitfalls can be that your house is not worth enough at its time of sale. Should you and your spouse live a long time, and draw a great deal of equity out of your home, your heirs could wind up owing the mortgage lender a considerable sum.
So, before getting a reverse mortgage, be sure to examine all the reverse mortgage pitfalls, and consider carefully as to whether it is something you really want to get.
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Home-Mortgage-Preparation.com :: Reverse Mortgage Pitfalls