If you are older than 62, then this article is probably going to be useful for you. In case your parents plan to use the reverse mortgage opportunity, and they are older than that, then you should know things we listed here as well.
To make things clear, a reverse mortgage is a type of loan for all the homeowners that are 62+. It allows them to borrow a certain amount of money that is against the value of their house or apartment. For that amount, they will get the funds in the form of a fixed monthly payment or line of credit.
So, what happens with the loan? The loan becomes payable when the person that borrowed the money dies. Of course, there are some more positive reasons why the loan becomes payable. It may happen that a borrow simply moves away of he sells his home.
We explained in short terms what reverse mortgage is, but we are quite sure you have more questions. Because of that, you may want to check out landmarkmortgagecapical.com after reading this article and check the FAQ about reverse mortgages. There is probably a lot of useful information for you.
Yet, something we would like to highlight about reverse mortgages here is that there are certain pitfalls you should be aware of. If you don’t notice them, you won’t manage to avoid them. Because of that, we decided to highlight the most common ones and help you make the right decision in the end. Let’s go!
- 1 1. Ongoing and High Closing Costs Are High
- 2 2. The Interest Rate Is Adjustable
- 3 3. Heirs could Potentially Inherit a Home with Less Equity
- 4 4. Selling the House Is Going to Be a Bit Tougher
- 5 5. The Benefits You Get from the Government May Reduce
- 6 6. Some People Outlive Their Reverse Mortgage
- 7 Final Thought
1. Ongoing and High Closing Costs Are High
The first thing you should pay attention to is the closing and ongoing fees that you will have to pay. You need to ensure that they are not extremely high before you even decide on this move. Some people simply could not afford to cover them; besides, there is probably a good reason why they are getting a loan, right?
Anyway, the point here is that you do not have to spend a lot of money on them. All you have to do is to closely research the offer you get and try to notice all the details that may not be good for you.
2. The Interest Rate Is Adjustable
Okay, if you receive the reverse mortgage in the form of a lump sum, then this problem is probably not going to appear. However, in every other case, your interest rate is going to be adjustable on your balance. In other words, this would mean that the interest rate is going to grow over time, just like your loan balance. Sooner or later, you will notice that you are staying out of the home equity as time passes. We are sure this is something you would definitely want to avoid.
3. Heirs could Potentially Inherit a Home with Less Equity
As previously mentioned, the reverse mortgage balance does not remain the same all the time and it grows as time passes. Because of that, your heirs will, in the end, receive less equity after your die. Indeed, it would be unfair to say that their responsibilities are big. However, the amount of money that they will have to pay may not be too affordable. In case they can’t cover the costs, that would mean they will lose the right to keep your home. Would you want to make a scenario like that?
4. Selling the House Is Going to Be a Bit Tougher
Well, this is another thing all people that plan to get a reverse mortgage need to be aware of. As previously mentioned, equity drops because the loan balance increases every single month. Indeed, this is some kind of offset by the prices of properties in the neighborhood you live in. However, the same thing can also influence your opportunity to sell your house or apartment when the values go down.
To avoid this problem, you should collaborate with real estate agents or simply research the prices in your neighborhood. You should speak to people that recently moved to your neighborhood and ask them how much money they spent to purchase a house. However, we believe the first option is much better because real estate agents will easily present the price trends in the place where you live and how much money your neighbors got for selling the house.
5. The Benefits You Get from the Government May Reduce
Well, this may be one of the problems that all people should be aware of. They may lose the benefits they would potentially get from the government. Because of that, you need to closely collaborate with a financial planner and check out whether you receive the so-called SSI. For those that do not know, Ssi stands for Supplemental Security Income. In case when people decide to get their funds every single month, the benefits they would usually get would surely reduce.
6. Some People Outlive Their Reverse Mortgage
It is probably bad to say that some people live longer than they would want. However, these scenarios happen as well when people decide to get a reverse mortgage. Because of that, the balance itself can become higher than the home value.
So, what to do if something like this happens? You need to get the so-called built-in protection. In that way, you will get the right to sell your home at 95% of the value it has. The difference of 5% is going to be covered by the mortgage insurance.
We are sure everything is clear now and you now know which things you should try to avoid. However, before we end the article, we need to tell you to be careful. Many companies will try to scam you because they believe you are old. More precisely, they believe you are completely socially isolated and that no one else could give you a good piece of advice. We recommend you talk with all the people that could assist you during the procedure and ensure that everything is going according to plan.