Disadvantages of a Reverse Mortgage
Posted on: 21 September 2015 by Amy Jackson
Is a reverse mortgage right for you? Maybe, but maybe not. Here are a few disadvantages and reasons why you may want to consider another option.
Before getting a reverse mortgage learn about all the disadvantage of getting a reverse mortgage. In a traditional mortgage borrowers pay down the debt over a certain term normally 30 years. With a reverse mortgage the borrower is building up debt while they are living in their home.
Besides building up debt there also can be a significant amount up costs up front when brokering a reverse mortgage. When planning to take a small portion of the money or in planning to live in the home for a short period of time remember that the costs can push up the effective rate on your home substantially.
A final major disadvantage of reverse mortgages is that you will be leaving your family with a very small amount. This may be something you want to discuss with your family. Taking out reverse mortgages gives you less equity in your home and also leaves your family with less in their inheritance of your home. The longer you remain in your home, the more interest builds. This results in less equity in your home.
What are my current financial needs?
No matter what the age you have to assess your budget and find the best way to manage your financial needs. The best way is to go through your bills from the previous month. Be sure to include all expenses that you regularly have every month. Look over your budget to see where most of your expenses are. Then consider if you need to make adjustments to your budget.
Can I adjust my budget?
Of course this depends on the person and their household expenses. There are several ways to cut back on your expenses for example shop at cheaper grocery stores, cut back on eating out, premium cable, etc. If you find you cannot sacrifice anything because you are so used to them, think about how much money you would need to continue. A good thing to consider is the length of time the equity in your home can cover your budget.
Am I willing to move?
There are additional options to increase your cash flow besides a reverse mortgage. The most common of options is moving. Needless to say it's difficult considering moving out of your home that you raised your family in and maybe made improvements to but there are times when moving is the best option. Once you sell your home the money you gain from the sale could be used to rent a home or perhaps buy a smaller home. You may want to consider a townhouse or condo as well. There are times when senior citizens need to evaluate if their current home is a suitable environment. Think about if getting around your home is as easy as it used to be now that you're older. As we all get older taking care of a larger home gets difficult. If assisted living is in your near future it may be best to sell your home.
Regardless of the final decision seniors that are considering a reverse mortgage need to assess their home situation as it presently is and decide if moving is the best option for you.
What do I plan to gain from a Reverse Mortgage and is this realistic?
This is one question you should ask yourself. Think about why you need a significant amount of cash immediately. There are many advantages and disadvantages of reverse mortgages. Regardless of why you need the money it's extremely important to understand the interest you will be accruing. Ask yourself this question and think about what your true motives are and think about what other options might be.
If you feel you are comfortable with the disadvantages of a reverse mortgage be sure to consult a reverse mortgage lender and discuss your situation. You can check out this One Reverse Mortgage review as a starting point, but it is likely in your best interests to compare multiple options, just like you would for any other major financial transaction.