This article is about the reverse mortgage disadvantages that no one seem to want to talk about. We are going to highlight them for you so you can see the disadvantages and understand how to deal with them.
1. You lose the interest write off.
a. With a reverse mortgage, monthly payments are not a requirement. If you are not paying payments, you are not paying interest. Most people do not make payments for many years, but if you choose to, you will get the write off.
b. The interest write off is probably less important than not making any mortgage payments and most likely will benefit you greatly. In some cases, very few, the loss of a tax write off could cost you more in taxes. If you are concrned that this could effect you, then speak with a tax professional.
2. Accruing interest or your balance growing:
a. Interest accrues on a reverse mortgage. In other words, as the months progress, your balance will increase. You are still being charged interest even though you are not making payments, and that interest has to go somewhere. Your loan balance will continue to grow, as the lender adds the accrued interest to your balance.
b. No payments today in trade for a bigger payoff tomorrow. Since the majority of reverse mortgages get paid off after the homeowner passes away, the monthly payments got deferred indefinitely.
3. Reverse mortgages come with excessive fees.
a. It may seem like the fees are more expensive on a reverse mortgage than on a typical home loan. Maybe because there are no monthly payments, it seems justified.
b. New programs have recently been released that have cut the cost of a reverse mortgage in half from what they used to be. It would be wise to check into the loans again if cost was the reason that you held off in the past. You will be surprised on how much the fees have been reduced.
4. You leave less money to your kids:
a. Make no mistake about it, you are spending the equity in your home. Some will say this reduces the amount you are able to bequeath. You could actually be helping them more than you know.
b. Why should you feel guilty spending your equity? It is yours isn’t it? Don’t get me wrong, there is nothing wrong with asking for help when you need it. But if you have equity in your home, you don’t need it yet. Think about it like this; Use your assets for you, and let the children take care of themselves. There is nothing wrong with leaving something, but it should not make your life a hardship to do so.
This article was written to show the reverse mortgage disadvantages that people fear. By comparing them to the “advantage” side, hopefully you will be more informed. Once you know what your goals are, it will become much easier to find your options. To take the next step and move forward with your reverse mortgage, just make sure you understand both sides of the argument, and the choice you make will be correct.
