If you are looking to pay off your outstanding debt, finance you retirement, or put money towards your dream vacation, a reverse mortgage may seem like a tempting idea, however that is not always the case. In fact with interest rates taken into account, you’ll more than likely end up paying back much more money than you borrowed.
Before we explore the myths and facts regarding reverse mortgages, here’s the concrete definition of a reverse mortgage for reference: A reverse mortgage is loan available to homeowners who are 62 years or older that enables them to convert part of the equity in their home into cash. Sounds pretty simple, right? Not so much. Although a reverse mortgage sounds like a pretty good alternative in comparison to a few other loan options, it does have several disadvantages. Here are a few:
1. High Fees & Interest Rates. Because a reverse mortgage isn’t a type of loan that requires a certain level of income or credit score, the lender usually compensates by charging high fees. The fees associated with reverse mortgages, including origination fees and other up-front fees, are often higher than typical loans fees. In addition to these fees, interest rates on reverse mortgage are also often higher than other types of home equity loans.
2. Repayment Terms. Most people know that you have to pay back the loan upon moving out of the house. Howeverlenders consider you as having “moved out”, if you have not lived in your house for a year or more. When you decide to move out of your home, if you cannot pay the loan back either through the selling of your home or out of pocket, then the bank or lender will then receive ownership. In most cases you sell your home whenever you are ready to move and therefore the selling of your home would cover the amount of the reverse mortgage loan, however some circumstances don’t allow you to sell your home fast enough. So let’s say for example, you caught a bout of Alzheimer’s and your family decides to move you into a nursing home. After you have been there a year, your lender will consider that as you moving out and therefore will require repayment of the loan immediately. The other circumstances that elicits repayment is your death. Upon your death your family is required to pay back the loan. Which brings us to the third disadvantage.
3. Inheritance Issues. When you pass away your family has the option of either paying back the loan which may allow them to inherit the house (although at a lower value), or losing the house. In most cases, families are not able to carry the financial burden of repaying the reverse mortgage loan, and therefore often end up losing the house all together.
So what would be a better alternative to a reverse mortgage? Simple: a life settlement. With a life settlement there absolutely no high fees or interest rates, and best of all you NEVER have to pay the money back. In fact, with a retained coverage settlement you can even set it up so that your children will still receive a portion of your life insurance upon your death. Click here to check out the other benefits of life settlements or call today us at 877-303-9777.