What is the catch on a reverse mortgage? Read here to learn how a reverse mortgage may not be such a great thing.
A reverse mortgage is used by many senior citizens to liquidate a portion of their home’s equity without selling their home. While there are many benefits of a reverse mortgage, it does come with a few catches that need to be considered prior to getting a reverse mortgage.
Your Payout May Be Limited
The first catch on a reverse mortgage is that your payout may be limited and you may not get as much as you need. To get a reverse mortgage, you only need to be 62 years old, but if you are still relatively young, you may not get as much in proceeds as you desire. This is because the younger you are, the less you can borrow in the form a reverse mortgage.
Your Overall Net Worth Will Deplete
The next catch on a reverse mortgage is that your overall net worth will deplete. When you take out a reverse mortgage, the amount you borrow will accrue interest cumulatively. Because of this, your home equity and net worth will begin to deplete rather quickly. This means that upon your passing, you will not be able to leave as large of a nest egg to your heirs.
You May Have to Pay it Back
The last catch on a reverse mortgage is that you may have to pay it back. A reverse mortgage is only designed for senior citizens who take out a reverse mortgage on their primary residence. If you move out of your home and into another home or into a nursing home, you will be required to repay the reverse mortgage prior to your death. If you are not able to sell your home or pay off the loan, the loan could go into default.
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