Why shouldn’t I get a reverse mortgage? Read here for reasons why a reverse mortgage may be a bad idea for you!
Due to economic conditions which include drastically reduced retirement account balances, many retired individuals are looking for additional ways to gain cash flow. A reverse mortgage allows a retired homeowner to liquidate a portion of their home’s equity without having to move or pay a monthly bill. Unfortunately, there are various downsides to a reverse mortgage which should be taken into consideration.
Reverse Mortgage Fees
The first reason why you shouldn’t get a reverse mortgage is because of fees associated with the reverse mortgage. A reverse mortgage normally comes with high origination fees, which can be as much as $6,000, depending on the amount borrowed. These fees are normally paid out of pocket by the retired individual, but they can be lumped into the balanced owed.
Accruing Interest
Another reason why you shouldn’t get a reverse mortgage is that a reverse mortgage will accrue interest. Each month as you borrow more money from your home’s equity, the reverse mortgage balance will grow. The balance due will also grow exponentially due to interest rates which often exceed traditional mortgage rates. Because of this, you could completely liquidate all of your home’s equity rather quickly.
Burden on Family
The last reason why you shouldn’t get a reverse mortgage is that it places a burden on your family. Upon your death, your home will need to be sold by your family in order to pay off the reverse mortgage. If your home is not sold within a specified period of time, which is normally 6 months, your heirs will need to begin to repay the balance owed. If your family is unable to make the reverse mortgage payment or sell your home, the home may go into foreclosure.
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