What are the cons of a reverse mortgage? Read here to understand how much a reverse mortgage really costs!!
A reverse mortgage is a popular financial product available to senior citizens who need to tap into the equity within their homes. A reverse mortgage allows a senior citizen to borrow equity in their home without having to sell their homes. Unlike a line of credit, a reverse mortgage does not require any monthly payments and the loan does not need to be paid back until the homeowner dies or sells the home. While there are many pros of a reverse mortgage, this article discusses some of the cons of a reverse mortgage.
Interest
The first con of a reverse mortgage is the interest that accrues on a reverse mortgage. Since the balance of a reverse mortgage accrues interest and no payments are being made, the outstanding balance grows quickly. Depending on how long the loan is outstanding, the balance can grow to a point where the senior citizen loses all equity in their home.
Fees
Another con of a reverse mortgage is the fees that are incurred by the borrower. Origination fees of a reverse mortgage can be quite expensive. These fees need to be paid out of pocket, which is an expense many senior citizens may not be able to afford.
Burden on Family
Another con of a reverse mortgage is the burden it places on the senior citizen’s family. After a senior citizen’s death, the heirs of the reverse mortgage borrower are required to sell the home or begin paying back the loan. In today’s housing market, selling a home is quite difficult and the proceeds received from a quick sale may not be enough to pay off the reverse mortgage balance. If the home can’t be sold, the family will need to pay back the loan in monthly installments.
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