Pitfalls of Reverse Mortgages

Even though reverse mortgages have become more and more popular over the years, thanks to their obvious advantages, there are still plenty of drawbacks that can easily place them in the “loans with pitfalls” area. Here are some insightful ideas on how these reverse mortgages actually work and why you should be extra careful when considering going this route.

Reverse mortgages are strictly for seniors who are at least 62 years of age and in need of cash. However, depending upon the terms and conditions, falling real estate prices, and due to the high incidence of reported frauds, reverse mortgages can easily turn into high risk loans.

However, these loans are able to transform home equity into cash and don’t have to be paid back until the borrower dies or moves out of the respective property. This is a huge draw, and one of the reasons that people go this route.

One of the pitfalls happens when the borrower decides to move. Whether he’s relocating to be closer to his children or wants to travel the world, when he leaves the house, he has two options. He can either come up with all of the money he has borrowed and pay it in full, or he can sell the house. Sometimes, selling the house can be so difficult that borrowers have no choice but to pay the loan or lose their house to foreclosure.

The official statistics show that there is a huge boost in the number of seniors getting reverse mortgages, so it seems that the risk factors don’t make much of a difference on the popularity of them. However, it’s important to realize that getting a reverse mortgage should never be an answer if the senior can’t stay in their own home. The extremely expensive fees these loans attract and the many examples of frauds turn them into clock bombs waiting to explode in these vulnerable seniors’ faces, and this is why they should be treated with a lot more attention.  Questions such as “are you able to afford to stay in your home?” should be mandatory for everyone who decides to get a reverse mortgage, as cases of those who end up losing their homes shortly after getting the reverse mortgage loan they wanted are numerous.       

  

Plus, the standard closing fees or the mortgage insurance premium fees are just some examples of what you will face when getting such a loan. Insurance agents looking to take advantage of vulnerable individuals are certainly going to corner and try to persuade you to invest the money in an annuity that won’t begin payments for years, and this can only mean an obvious scam.