Why a reverse mortgage is a bad idea?

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asked Jul 14 in Real Estate - Renting by sunlightsw (1,130 points)
Why a reverse mortgage is a bad idea?

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answered Jul 15 by Contrapagan (4,020 points)
Reverse mortgages can be a bad idea because they have higher fees than some other loans, you have to maintain your home or lose the home, your house cannot be transferred to a child upon your death if you have a reverse mortgage as the bank will take the home for repayment upon the last borrowers death.

Basically with a reverse mortgage you're selling the home back to the bank through payments and they can get your home for way less than you paid for it.

For example if you took out a reverse mortgage and only got $40,000.00 from the loan and your home was worth $100,000.00 or more then you would be giving the bank a huge profit because upon your death they would get the rest of the money once they sell the house.

A reverse mortgage is a mortgage loan, usually secured by a residential property, which enables the borrower to access the unencumbered value of the property.

The loans are typically promoted to older homeowners and typically do not require monthly mortgage payments.

Reverse mortgage loans allow homeowners to convert their home equity into cash income with no monthly mortgage payments.

Reverse mortgages can be a great financial decision for some seniors but a poor financial decision for others.

Reverse mortgages have costs that include lender fees (origination fees are capped at $6,000.00 and depend on the amount of your loan), FHA insurance charges and closing costs.

These costs can be added to the loan balance; however, that means the borrower would have more debt and less equity.

The high costs of reverse mortgages are not worth it for most people.

You're better off selling your home and moving to a cheaper place, keeping whatever equity you have in your pocket rather than owing it to a reverse mortgage lender.

Reverse mortgage loans typically must be repaid either when you move out of the home or when you die.

However, the loan may need to be paid back sooner if the home is no longer your principal residence, you fail to pay your property taxes or homeowners insurance, or do not keep the home in good repair.

When you take out a reverse mortgage loan, the title to your home remains with you.

Most reverse mortgages are Home Equity Conversion Mortgages (HECMs).

So, the normal term of a reverse mortgage is the length of time a borrower remains living in his home after having taken out the mortgage.

According to Forbes Magazine, the average term ends up being about seven years.

You are not required to make monthly payments on the reverse mortgage because the loan balance doesn't come due until the final borrower moves out of the home, passes away, fails to pay taxes or insurance, or neglects to maintain the home.

A reverse mortgage does not affect regular Social Security payments or disability benefits.

However, if you are on Supplemental Security Income (SSI), any reverse mortgage proceeds that you receive must be used immediately.

Funds that you retain count as an asset and could impact eligibility.

There are no prepayment penalties on reverse mortgages.

In most cases, there's a contract of up to ten years that allows you and other homeowners to pay off the loan balance at any time without penalty.

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