In these hard economic times, reverse mortgages mortgage refinancing gaining in popularity. But if you are considering this type of loan (also called a reverse annuity mortgage) you should proceed with great caution. There are definite disadvantages of a reverse mortgage. You need to be fully aware of what a loan of this sort will cost you before you apply.
Here are several disadvantages of a "reverse annuity mortgage:"
- Most lenders charge a non-refundable application fee, so if you apply, then decide not to take out the loan, you will lose money (the average loan application fee is $300)
- There are future loan charges involved that are unpredictable.
- The terms and conditions are complex and can be confusing.
- You will probably pay a monthly service fee.
- Set-up costs are expensive - laden with fees to lenders, brokers, insurers, and other intermediaries -- totaling roughly 10% of your home's value.
- There is no definite life span of the loan.
- The amount you owe continues to increase for as long as you live in the home.
- You will not get as much equity out of your house when you sell, or
- You mortgage refinancing not have any equity at all when the house is sold -- so there may be nothing for you or for your heirs.
- Payouts received by the borrower could affect eligibility for some government assistance programs such as Supplemental Social Security Income, Medicaid, or food stamps. Check with the provider of any benefits you are receiving or may receive in the future to find out.
- Getting a reverse mortgage virtually guarantees that your home will one day have to be sold in order to pay the loan.
If you want to keep your home in the family, this is probably not the right choice for you. If you are OK with knowing that the house will probably have to be sold to pay off the loan, a reverse mortgage may be a viable option - especially if you have urgent financial needs, and your only asset is your home equity.
These loans are so expensive and complex that the FHA will not even accept an application for one until the borrower has been through financial counseling with a HUD approved housing counseling agency. The best advice is, make sure you have exhausted all other options before considering a costly reverse mortgage. Getting a reverse mortgage should be viewed as a last resort for raising needed cash.
We have only touched on the high points here...To see a much more comprehensive article on the advantages and disadvantages of a reverse mortgage along with frequently asked Questions, go to http://www.e-home-mortgage-loans.com/reverse-mortgage.html
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