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Drawbacks of A Reverse Mortgage

There are plenty of good things about the reverse mortgage. It allows many homeowners to secure the funds that they need to make ends meet, to allow for long term care and to make home improvements. The homeowner decides what to do with the money that he secures. He also gets to tap into this equity without having to pay it back, in most cases. Those that find themselves in need of a reverse mortgage can secure it rather quickly, too. There are no credit or employment verifications needed. With so much going for them, it is obvious why these mortgages are being secured by so many out there.

Yet, there are some important thing’s that should be noted about them prior to securing one.

• When the homeowner dies or permanently moves out of his home, the home will need to be sold in order to pay off the mortgage. The mortgage will be due at this time, in a lump sum. If the heirs or the homeowner would like to keep the home, they will need to make payment on the home within a year of the mortgage coming due. In many ways, the heirs will be faced with having to make a decision about paying off the mortgage or selling the home.

• There are quite substantial fees involved in these mortgages. In many ways, these are much more costly then those of a standard mortgage. There is an additional fee of two percent that is applied to an insurance premium. Another two percent will be used for a loan origination fee. On top of this, standard closing costs will be applied as well. In short, a $200,000 reverse mortgage may have $10,000 worth of fees involved with it. This will have to come off the loan prior to the funds being provided.

• If the homeowner still holds a mortgage on the home when he seeks out the reverse mortgage, the mortgage will need to be paid off in full with the funds from the reverse mortgage and/or personal funds as needed.

When considering a reverse mortgage, it is very important for the homeowner to seek out the right loan for their needs. In most cases, this will mean talking to several lenders and their heirs to insure that everyone is on the same page. There are ways to save money too. For example, many state and local governments offer lower fees or even no fees on this type of loan. While there are many benefits to this type of loan, the homeowner still needs to weigh his decision carefully.