More and more people are taking out reverse mortgages but are there risks involved? Find out more about it here.
With economy the way it is today more and more seniors are turning to reverse mortgages as a way to get a little extra money toward their retirement incomes. These mortgages can give you a set monthly amount of income or a lump sum.
Is taking out a reverse mortgage for more than I can pay back a risk?
The amount of a reverse mortgage depends on your age, your home’s value, and the interest rates at the time you take out the loan. The amount of money you can receive will be more if you are older, the value of the house is higher or the interest rates lower. You are never lent more than 80% of the value (or anticipated value) of your property.
Are there a lot of fees involved?
Though they are not exactly a risk there are many fees you will need to pay before you obtain your reverse mortgage. This includes things like a loan origination fee, title and tax search, inspection fee, annuity purchase payment, and tax reporting service. You will have to have the property/home appraised by a licensed real estate appraiser and of course, you will have to pay an attorney to be present at the closing and give you advice along the way.
What about during the life of the loan?
During the period you have your loan you will have to pay additional mortgage insurance, regular up keep of the home, for example paying all utility bills, fixing leaks in the roof, yard maintenance, and replacing broken windows. You will also have to pay the usual real estate taxes and you will have to carry a homeowner’s insurance policy. You probably do and have been doing all these things for many years. There is also usually a monthly servicing fee that is not more than $30.
What about risks to my family after I die and the loan must be paid?
There may be some additional fees, costs or payments due at that time. There may be a termination fee or a maturity fee. It may include things like advertising costs, broker’s fees, moving and /or storage costs and legal fees.
Are there any other risks I should know?
First of all never borrow more than you need. You do not want to end up paying interest on money you did not need in the first place. In addition, the interest on a reverse mortgage is compounded. Therefore you are paying inters on the principal and the interest which has already accrued. A large part of the equity in the house goes toward interest.
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