Reverse Mortgages can be Dangerous
April 22nd, 2008
Reverse Mortgages Growing
With much of the “baby boomer” population beginning to reach their senior citizen and retirement ages, many people are relying on their home’s equity for income. Their home equity is even more important considering how difficult it has become for many people to have a financially secure retirement. Perhaps the most popular way to utilize home equity is through a reverse mortgage. Reverse mortgages are available to people over the age of 62 and allows home equity to be released through multiple payments or a lump sum to the home owner. It allows people to get the income they need during retirement while deferring their mortgage payments during that period. It’s a great opportunity if it fits your financial situation, but there are some potential hazards you need to be aware of.
Reverse Mortgage Hazards
- When reverse mortgages were first created, they were offered exclusively with adjustable interest rates. As you know, adjustable interest rates are usually a gamble that the homeowner doesn’t end up winning. With a little persistence, you may be able to get a fixed rate.
- One of the major hazards of a reverse mortgage is the rule that states you must pay back any cash you receive from a reverse mortgage if you sell the home or no longer use it as your primary residence. This could be a very expensive debt at a time when you don’t have a lot of extra cash.
- Another possible problem is the high upfront costs of a reverse mortgage. Closing costs are comparable to a traditional mortgage, except there’s also the 2% mortgage insurance premium the FHA charges.
- When you eventually pass on, whoever is the heir to your home will have a choice to sell the home and repay the loan or keep the home and continue paying the loan. However, if they cannot afford to make the payments, they will have to forfeit the home.
- Ask your lender about their policies on home upkeep and repair. Your home’s condition is an important part of the mortgage and you should always have enough money to take care of future repairs.
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