Reverse mortgages serve as one way to enhance your quality of life during retirement when access to capital isn’t otherwise available. Reverse mortgages afford you the opportunity to borrow equity off your home, without the need to pay it back right away. While this seems like the ideal solution to a financial crunch, there are both pros and cons of getting a reverse mortgage. Here are just a handful of the cons you need to look out for.
The greatest con associated with a reverse mortgage is the fact that the loan will accumulate interest over time. The amount that would be due on the loan today is only a mere fraction of what will be due when it’s time to make payment on the loan. Some borrowers will take into account the current amount of the loan not realizing that they will leave behind a much larger bill when the payment is actually due. Reverse mortgages come with significant interest accumulation that needs to be considered.
Reverse mortgage loans are also often hard to comprehend. The terms and guidelines concerning these loans can make understanding what you’re agreeing to slightly difficult. This factor can lead to seniors agreeing to terms that they don’t necessarily understand, therefore defaulting on their loan agreement. With traditional mortgages you basically make your payments on time and that’s it. However, reverse mortgages have accumulating payment amounts that grow over time and have terms that require you to live in the home or pay immediately.
Another unexpected con of reverse mortgages is the fact that you aren’t always able to tap into 100% of your home’s equity. In fact, if you have a substantial amount of equity built-up in your property, you can pretty much guarantee that you will only have access to a portion of this amount. Most of these loans have a pre-determined limit that establishes just how much equity you can tap into. However, the loan amount you receive is not just based on this limit, but also the value of your home, your age and your current interest rate, so keep this in mind.
It’s important to understand that reverse mortgages aren’t for everyone. Make certain that you are weighing all your options before making a decision, to ensure you are making the right decision.