While there are many features and benefits to a reverse mortgage, there are also some disadvantages of the reverse mortgage program. Most reverse mortgage lenders are quick to point out the many advantages to a reverse mortgage, but they tend to shy away from the downsides of the program as well.Loan Grows
When you take out a reverse mortgage, the interest that you get charged gets tacked on to the end of the loan. Because of this, the balance of the loan grows as time moves forward. For example, if you take out a lump sum $100,000 reverse mortgage loan at a 5% interest rate, the balance of your loan would be roughly $162,000 in 10 years.
Government Benefits
If you are currently getting supplemental social security income or if you are on Medicaid, then taking out a reverse mortgage may affect those payments. Payments will not be affected with regular social security income.
Tax Deducting Reverse Mortgage Interest
On a traditional mortgage you have the ability to tax deduct the mortgage interest you pay each year. But on a reverse mortgage, since you make no monthly mortgage payments, then you cannot tax deduct the mortgage interest until you permanently move out of the property and the loan gets repaid. But you can make monthly mortgage payments with a reverse mortgage, which then you may be able to tax deduct the interest payments, but mortgage payments are not required.
Reverse Mortgage Closing Costs
The closing costs for a reverse mortgage tend to be higher than a conventional loan mostly because the loan is insured by the FHA. So there are upfront mortgage insurance fees, as well as monthly mortgage insurance fees, but those fees are rolled into the loan 99.9% of the time.
Borrowers Responsibilities
Even though there are no monthly mortgage payments on the loan, the borrower is still responsible to pay for the property taxes, homeowners insurance, HOA fees and maintenance of the property. Just as you would even if you had no loan on the home or even a traditional loan.
Possible Reduction with Heirs Inheritance
When taking out a reverse mortgage, the balance of your mortgage grows over time, which reduces the equity in the home and possibly lowers the inheritance that your heirs will receive when you pass away. But they will be able to sell the home and the remaining equity in the home will go to them. They can also refinance the property into a traditional mortgage or pay off the reverse mortgage, if they want to keep the home.
While there are definitely disadvantages of a reverse mortgage, there are also many advantagesto the program as well.
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Disadvantages of the Reverse Mortgage Program
![Disadvantages of the Reverse Mortgage Program]()
Reviewed by Merlyn Rosell
Published :
Rating : 4.5
Published :
Rating : 4.5