According to CNN Money, reverse mortgages are very useful as a retirement tool but there are many downsides that some people do not realize.
Researching all the information that you can about reverse mortgages is a route that will save you both time and money in the future. There are several different types of reverse mortgages and each of them have their own advantages and disadvantages.
Here is some important info you should know before you decide to go with reverse mortgages:
Looking at Different Payout Options- Reverse mortgages vary when it comes to payout options. There are five different options that the Federal Housing Administration offers.
Option 1: Equal monthly payments that continue as long as one borrower remains living in the home as a principal resident
Option 2: Fixed term of years, this means payments will go on for a certain period of time and stop once that time has ended, even if the borrower is still living in the household
Option 3: Flexible line of credit, this gives the option to choose how much and when to take money out that does not exceed the maximum limit
Option 4: Combine lines of credit with the first two monthly payment option
Option 5: Use a portion of the available funds to open a line of credit and receive the rest in either monthly payment options
Only a Portion of the Home is Offered in Reverse Mortgages- Full equity is not provided when it comes to reverse mortgages. In fact, the Federal Housing Administration calculates the maximum mortgage amount (which is based on the youngest borrower), the appraised value of the home and current interest rates. There are other fees tacked on to reverse mortgages as well such as mortgage insurance premiums, service and origination fees and third-party lender charges. However, lenders generally total these fees into the loan amount so it reduces the net proceeds.
Losing Your Home is Still a Risk with Reverse Mortgages-Reverse mortgages do offer a lot of protection to homeowners but if one end of the deal isn’t being met, there is still a risk for losing your home.
Who Name Goes on the Reverse Mortgage- While you may think that it doesn’t matter whose name goes on the reverse mortgage, it actually does. There have been families that have dealt with some harsh consequences because they listed only one owner as a borrower. It is important to stay completely honest when it comes to reverse mortgages, don’t leave any information out.
Reverse mortgages can be a great way to prepare for the future and they can be a great way to make sure that retirement goes over without a hitch. However planning for the future and retirement means doing some research and learning all that you can about reverse mortgages and how they can best help you.