What is the downside of a reverse mortgage?

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asked Jul 23, 2023 in Real Estate - Renting by KetProlus (700 points)
What is the downside of a reverse mortgage?

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answered Jul 23, 2023 by Wendell (42,480 points)
The downside of a reverse mortgage is the upfront costs and the ongoing costs as well as a rising loan balance and variable interest rates.

A reverse mortgage can provide income to seniors based on the equity in their homes.

Reverse mortgage contracts can have hidden costs such as fees and interest can eat up your home equity.

Unless you are careful, you can risk losing your home or have it passed on to the lender when you die instead of to your heirs.

With a reverse mortgage the borrower is required to pay a variety of different fees such as origination fees, closing costs and mortgage insurance fees.

It's not all that hard to get a reverse mortgage as long as you have enough income and don't have limited resources and as long as your home has enough equity and meets any other eligibility requirements.

Reverse mortgage lenders can deny applications for a reverse mortgage when they determine through a financial assessment that the homeowner can't afford the property's upkeep, taxes, and homeowner's insurance costs.

In addition, to be approved for a reverse mortgage, you must also be current on any federal debt or be able to pay it in full at closing with proceeds from the loan.

There is no credit score or minimum credit score needed for a reverse mortgage because reverse mortgage lenders mainly want to know whether you can handle the ongoing expenses that are required to maintain the home.

Reverse mortgage lenders will look to see if you're delinquent on any federal debt though.

The amount of interest that is charged on a reverse mortgage is between 6.18% to 9.99%.

HECM Fixed Rate Mortgages are between the interest rates of 6.18% to 6.99% and Jumbo Fixed (Proprietary) reverse mortgage interest rates are between 8.99% to 9.99%

A reverse mortgage gets paid back when you either sell your home and use part of the money to pay back the reverse mortgage or when you die the bank takes the home and then sells the home to get the money back from the reverse mortgage.

Or if your heirs want to keep the home they can pay off the reverse mortgage in full and keep the home or sell it themselves.

The amount of money you get from a reverse mortgage depends on the value and amount of equity you have in your home.

However the amount of money that you can get from a reverse mortgage is between 40 percent to 60 percent of your home's appraised value.

The reverse mortgage can be paid out as a lump sum or in monthly payments.

A reverse mortgage is good for most seniors although taking out a reverse mortgage is not always a good idea for every senior.

The income from taking out a reverse mortgage does not always affect the senior's social security or Medicare eligibility and can be used as you desire.

The benefits from a reverse mortgage can take the financial burden off a family and allow a senior's estate to pay for long term care or living expenses when other means are not available.

You can live on a reverse mortgage for the rest of your life after age 62 when you qualify.

Though a reverse mortgage has no specific term, with a term reverse payment, the borrower of the reverse mortgage will receive equal monthly payments ending at a predetermined stop date.

If the borrower of the reverse mortgage lives longer than the agreed-upon term, they will outlive their available funds.

Anyone over the age of 62 that owns their home can get a reverse mortgage which lets the person convert a portion of the home's equity into cash.

You must own your home and have enough equity in your home to qualify for the reverse mortgage.

Both spouses do not have to be 62 to get a reverse mortgage and a spouse under the age of 62 can be added to a reverse mortgage as long as the other spouse is 62 or older.

Although some reverse mortgage lenders that are not affiliated with the HECM program might set the age requirement for the reverse mortgage below the age of 62.

You can lose your house or home with a reverse mortgage by not maintaining the home, keeping on repairs or if you fail to keep insurance on the home.

In a reverse mortgage the homeowner that has the reverse mortgage owns the home.

With a reverse mortgage the title remains with the homeowner and the bank does not own the home unless you default on the reverse mortgage or they foreclose on the reverse mortgage home due to not keeping up with repairs on the home.

Heirs of a reverse mortgage are not responsible for the reverse mortgage debt unless the heirs want to inherit and keep the home.

If you don't want to keep or sell the home that has a reverse mortgage then you don't have to pay back the reverse mortgage and the bank will take the home themselves and then sell the home to recoup the money owed.

When the holder of a reverse mortgage dies then the bank will take the house back and then sell it to recoup the money that was paid out on the reverse mortgage.

However if the reverse mortgage holder has kids or any heirs then they can take over the house and keep the house by paying the full balance of the reverse mortgage loan to keep the home.

In order to sell the home with a reverse mortgage the heirs will need to repay the reverse mortgage loan in full or at least 95 percent if the homes appraised value if the reverse mortgage loan balance owed is more than the homes value.

 If a loved one decides to take out a reverse mortgage on the home, and then chooses you as the heir to that home, then you would inherit the home with the reverse mortgage on it.

You don't have to be completely mortgage free to get a reverse mortgage but you must have a low balance on your mortgage or you must own your home outright.

If you still have a high mortgage balance on your home then you cannot get a reverse mortgage.

A reverse mortgage is a mortgage loan, usually secured by a residential property, that 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 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.

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