6 Examples Of When A Reverse Mortgage Might Be A Bad Idea
1. Shortterm needs
If you only need the money for a short period of time and then can repay the full balance a home equity loan would probably be a better fit then a reverse mortgage. Why? Because a reverse mortgage is mostly for homeowners who do not intend to pay back the money they receive during their lifetime.
2. Spouse not on title
If the title to your home is only in your name but your spouse is still living with you you should add your spouse onto the title. A reverse mortgage must be repaid when the last person on the title moves out of the property permanently or passes away. Therefore if you were to pass away before your spouse and your spouse was not on title the reverse mortgage would become due even though your spouse is still living in the property.
3. Don’t need the money
If you don’t need the money right away then you probably should not rush to take out a reverse mortgage. The interest on a reverse mortgage is low but it is not interest free. If you have other funds that you can use such as CDs or savings accounts use those before considering a reverse mortgage.
4. Risky investments
If you are being encouraged to get a reverse mortgage so that you can use the money to invest in stocks startup companies realestate or any other type of investment you should take a good hard look at what the person encouraging you stands to gain. Chances are they’re asking you to take big financial risks at a time in your life when you should be conservative. If your home is your only asset don’t risk it.
5. Annuities
Dishonest life insurance salespeople will often encourage homeowners to take out a reverse mortgage and then try to sell the homeowner an annuity. However be warned that is wasteful because the reverse mortgage has a builtin annuity feature called term or tenure payments that you can use to save yourself the commission that the insurance agent would like to make.
6. Low property value
On lowvalue homes the closing costs will be a higher percentage of the home’s equity compared to the same loan on a higherpriced home. For example if the miscellaneous closing costs such as appraisal title and notary are 1000 on a 100000 home then that represents 1 of the home’s value. However on a 40000 home that represents 2.5 of the home value. Therefore senior citizens with lowvalue houses should look closely at the closing costs as a percentage of their home’s equity.
About the writer: Reverse Mortgage Guides is an education resource that tries to get to the truth about HECM reverse mortgages the good and the bad.
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