What are the downsides of a reverse mortgage? Read here to learn about the disadvantages of a reverse mortgage!
While a reverse mortgage is a popular product that allows a borrower to liquidate a portion of their home equity, there are several downsides that must be considered prior to getting a reverse mortgage.
Rapidly Decreases Your Equity
The first downside of a reverse mortgage is that it rapidly decreases your home equity. A reverse mortgage is unlike other loans in that it does not require your to make monthly payments. Because of this, the reverse mortgage principal balance will accrue interest exponentially. This will cause your home equity to decrease dramatically and quickly.
Excessive Fees
The second of a reverse mortgage is that they often come with excessive fees. Due to the risks that a reverse mortgage lender takes on, a reverse mortgage lender will often charge higher fees than a traditional mortgage lender will. While these fees are capped at around $6,000, the fees still make the loan unaffordable for some borrowers.
Forces You to Stay in Your Home
Another downside of a reverse mortgage is that it forces you to stay in your home. A reverse mortgage may only be secured by your primary residence. Therefore, if you want to move into another home or need to move into a nursing facility, you will be forced to repay the mortgage loan. If you can not refinance your mortgage you will be required to sell your home and pay off the loan.
Places a Burden on Your Family
Another downside of a reverse mortgage is that it places a burden on your family. Upon your death your family will be responsible to pay off the reverse mortgage. While they are given a grace period, this could require your family to sell your home quickly. If they do not sell your home, they will be required to refinance the mortgage into a traditional mortgage.
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