The reverse mortgage has gained interest in recent years. It seems like a good idea for many retirees. With a reverse mortgage, you can access your equity and the bank will make the mortgage payment to you. So, you can transform your home into a source of income. Though it seems like a good idea, according to financial experts, you should avoid the reverse mortgage. Here are some of the reasons why the reverse mortgage is not a good idea.
The reverse mortgage is a loan, so there will be loan-related fees. The origination and other fees on a reverse mortgage are high. A reverse mortgage is a home equity loan that is decided not on your credit score or income. So, there are risks associated with it. Lenders offset this risk by charging higher fees.
High interest rate
The interest rate on a reverse mortgage is greater than that of a traditional home equity loan. Eventually, you get little of your money, and the bank gets the bigger chunk.
Your heirs might not get the house
In the case of a reverse mortgage, the loan is paid off after you sell the house. So, if you die, the house will be sold to recover the loan amount. Your heirs won’t be able to have the house unless they pay off the reverse mortgage amount.
If you move out, you have to repay the loan
To repay the loan, you have to live in your home most of the time. If you haven’t lived in the house for a year, you will be considered ‘moved out.’ In such case, you have to start repaying your reverse mortgage.
You will be responsible for the home costs
You still have to pay the property taxes, pay the homeowners insurance, and pay the regular maintenance on the home.
A reverse mortgage is a loan against your home’s equity which you need to pay back. So, you should think carefully before getting a reverse mortgage.