Disadvantages of Reverse Mortgages: Taking a Reverse Mortgage Too Early
While reverse mortgages can be useful retirement planning tools, they are not for everyone. For some borrowers, the disadvantages of reverse mortgages can outweigh the positives.
It is important to evaluate your financial situation to make sure that you will not be among those who take out a reverse mortgage too early. In these cases, your loan can run out of money before your need for the money ends. In this case, even thought you do not have to repay the mortgage until your home is sold, you will not have the additional cushion to live on either.
Contact us today to learn more information about reverse mortgage requirements and how to avoid any major disadvantages of reverse mortgages.
3 Disadvantages of Reverse Mortgages Related to Taking Money Too Early
Inability to Pay Taxes and Maintenance
It used to be that one of the main disadvantages of reverse mortgages was what would happen after the money ran out. If you took out the reverse mortgage too early, you might use up all the money and not be able to pay the property taxes and maintenance for your home as required by the reverse mortgage loan. These days, you are required to prove that you can pay these fees with your fixed income before the loan is issued, which has helped to halt this problem.
Borrowing More than Your House is Worth
Property values rise and fall on cycles that not everyone can predict. One of the disadvantages of reverse mortgages used to be that you could borrow when your home value was high in value, but have to repay the mortgage by selling your home when the value is low. However, it has now been arranged so that reverse mortgages are insured by the Federal government.
This means that you cannot owe more than your home is worth. Therefore, if your house is worth less than the amount of your outstanding reverse mortgage loan at the time you pay back the loan, the bank is insured and doesn't lose any money. Still, if you were planning to leave an inheritance from a portion of your home behind, taking a loan out too early might allow too much interest to build up so that there is no money left after paying off the reverse mortgage loan. These fees over time can be one of the disadvantages of reverse mortgages early in retirement.
Not Putting Your Spouse on the Loan
If you are married, it is very important to make sure that both of your names are on the reverse mortgage. Reverse mortgage eligibility begins at 62, but if there is a difference in your ages one of you could end up in an assisted living home or passing away before the other. One of the disadvantages of reverse mortgages is that you must repay the loan when the last borrower leaves the home. If you are not both on the loan, the spouse who remains in the home would have to sell the home to repay the reverse mortgage.
Contact Us to Learn More About Disadvantages of Reverse Mortgages
The disadvantages of reverse mortgages are nothing to worry about if you have prepared for them and planned appropriately. Often times, you can find ways to prevent them during the application process itself. If you live in California, Florida, or Pennsylvania and are interested in learning more about the disadvantages of reverse mortgages and reverse mortgage requirements, contact us today online or by phone.