Living has just become harder with the recession hitting us unprepared. In this case, many of us are looking for better options to get the money that we need to get by. One of the options that you have is getting reverse mortgages. This type of mortgage allows you to receive money depending on the equity of your house. The lender o the financial institution will get their money back along with interest when the house is sold or when the borrower and surviving spouse dies.
Reverse mortgage can be a wonderful solution to a financial problem. However, this type of loan is not for everyone. And you should be on guard against financial agents trying to sell you into getting a loan against your home equity. Here are some of the disadvantages that you should consider before giving in to the sweet sales talk of that agent:
Reverse Home Mortgage can Build Up Debt
While a traditional mortgage is there to help you to finance your home purchase, the reverse type takes your home which is free of debt. In the first one, you make payments every month and eventually pay down the principal amount that you owe your lender. On the other hand, the latter will create a new debt on your home. So instead of clearing yourself of debt little by little, you are actually creating new debt.
Obtaining the Mortgage Actually Involve Significant Costs
All types of loans require fees and pose some costs in the process of availing them. But, some claims that the entire process of getting a loan through this process is quite expensive. You have to spend money on fees for application, appraisal, credit report, monthly service, closing costs and insurance. You still have to pay for property taxes, insurance and repairs if you are allowed to stay at the mortgaged house. And some financial experts can see thousands of dollars in expenses in obtaining a reverse home mortgage as compared the conventional mortgages.
You can be Ineligible for Federal or State Assistance
You may obtain a hefty sum from getting a reverse loan but this can be the cause for you to be denied of low-income assistance from the government like Medi-Cal benefits, Supplemental Social Security Income or SSI and Medicaid. It is, therefore, advisable that you check if your loan will have an adverse effect on any support that you are currently receiving.
You are Not Free to Move
In this type of loan, it is a requirement that the home should be your primary residence. So while you have a mortgage, you are actually not allowed to move out of the house. Besides, moving out of the house soon after getting the loan will mean that you will not recoup with the upfront costs that you have spent just to get the loan. You sure want to travel and experience living in other places when you retire and reverse home mortgage may not allow you so.
Reverse mortgages can be beneficial. Yes, but only to some person and at the right situation. And you could be at a disadvantage if you don’t consider your options wisely before getting involved with this type of loan.