Advertisement

Avoid these reverse mortgage pitfalls

April 17, 2010

While reverse mortgages can be a boon to seniors looking to receive cash now, there are some dangers to be aware of that can prove costly to unsuspecting homeowners.

1. The money for taxes, insurance and various fees is subtracted from the amount the mortgage holder receives for their monthly payment, thereby reducing the net amount of the money you will get each month.

2. Be aware that if you move into a nursing home or other assisted care facility, which is likely for many seniors, your home is no longer your primary residence. The lender can then come for the loan. The same is said if you move to another residence for half of the year, which is common in a "snow bird" situation.

3. You could be asked to pay higher fees and closing costs for a reverse mortgage than a traditional mortgage.

4. Many unsuspecting homeowners are sucked into adjustable rate mortgages for their reverse mortgage. ARMs, as many know, have a fluctuating interest rate that can go quite high. Consider fixed-rate loans if you're concerned about adjustable rates.

Advertisement

5. You can use the money gained from a reverse mortgage on any expenditure. That can make splurging very tempting. However, should an emergency arise down the line, you may have depleted the cash available from your home already.

The Herald-Mail Articles
|
|
|