Dangers Of Reverse Mortgages, Beware Of Hidden Funds
A reverse mortgage allows seniors to use the equity in their home and receive tax-free income without having to give up ownership, or make a monthly payment. The money that is received is paid back when the home is sold, usually after the owners have died or moved into other living arrangements. The amount of money received depends mainly on your age, how much the house is worth, the interest rate, and the current mortgage balance, if any.
There are three common options when you acquire a reverse mortgate: one large payment, fixed payments on a monthly basis, or an accessible credit line. Consider each option and don't forget the dangers of reverse mortgages no matter which you choose.
Under the right circumstances reverse home mortgages can be beneficial for home owners; in particular senior citizens. A reverse home loan can also have disadvantages as well. Higher interest rates and fraudulent firms are the main concerns. Please consider the dangers of reverse mortgages because there are serious pitfalls with this types of loans that can make them very unattractive. Being thoughtful in looking at this type of loan is very important so you don't lose your money or your home.
Reverse mortgages can be offered with either adjustable or fixed interest rates. The adjustable rates have the very real risk of moving upwards. Although rates may also decrease, it is best to choose a fixed interest rate. Over the term of the reverse mortgage, fluctuating interest rates can be very expensive.
Reverse mortgages have a binding condition which states that you must keep this house as your main residence. This means that any change of living arrangements, even to a care-facility will return the house to the mortgage lender, and the lender can then sell the home to recoup their money. The home equity outside of what is owed is rewarded to the owner. This results in not only losing money, but losing the home as well.
More dangers of reverse mortgages are that they give access to ready money. The loan could be quite substantial and maybe 'unexpected'. Unexpected money can easily be put to unexpected and unplanned extravagances. Watch out for this. Make a point to know all the reverse mortgages pros and cons before you get enticed or you might stand to lose your home.
There are three common options when you acquire a reverse mortgage: one large payment, fixed payments on a monthly basis, or an accessible credit line. Consider each option but don't forget the dangers of reverse mortgages, such as higher interest rates and fraudulent firms. They also bind you to the house as your primary residence, so any change in housing, even to a care facility will means the house reverts to the lenders who would sell to recover their money. The home equity beyond what is owed is then paid to the owner. Make sure that you are very aware of the common pitfalls of this kind of home loan.
Published December 28th, 2008
Filed in Finance, Real Estate
