The Reverse Mortgage Cons and Pros

What is retirement for if not having fun and relaxing? If you want it to be the way it should be, you need the funds to retire comfortably. As a homeowner, you may be sitting on those funds. You can access money you need by taking out a home mortgage. You also have the retirement age-only option of getting a reverse mortgage instead of a traditional loan. Here are some reverse mortgage cons and pros to help you decide.

Pro: You Do Not Pay The Mortgage Back Quickly

A reverse mortgage can be advantageous during your retirement because of its long-term nature. It is designed to take many years to repay. In fact, the agreement discourages early repayment of any part of the loan. That is quite different from a regular home mortgage, which requires ongoing payments made back to the lender starting soon after you borrow the money.

Pro: The Loan Length is Somewhat in Your Control

When you apply for a traditional mortgage, you have limited control over the length of the loan. The options are always a set number of years, often five. That is referred to as the loan period. A reverse mortgage can be useful because you have more control over the loan length in most circumstances. Essentially, the loan is attached to your relationship to the home. Therefore, as long as you continue to own it, you have the option to keep the loan active.

Con: You Can Violate a Reverse Mortgage Agreement

A traditional mortgage agreement can be violated, which is referred to as defaulting on the loan. For example, if you miss payments you are considered in default. That can lead to loss of your home.

It is a common misconception that you cannot default on a reverse mortgage. You need to know that when considering the pros or cons of reverse mortgage application. It is certainly true you cannot default on it in the same way. The reason such a default is impossible is because loan payments are never scheduled for certain dates. However, you can still default on the loan by moving out of it or failing to financially meet the obligations of owning it.

Con: You Cannot Have Both Mortgage Types at Once

A reverse mortgage is not an addition to a traditional home loan. However, it can be a replacement for one. If you have a traditional mortgage and want to get out from under it, applying for a reverse mortgage is an option. However, you have to use the money you get from it to pay the remaining loan balance from the traditional mortgage. Only then is what is left over free to use as you wish.

Con: A Reverse Mortgage Can Have Unforeseen Fees

Another thing to be careful of with a reverse mortgage is it can seem to have fewer fees than a traditional mortgage, but it may actually have more. It has similar initial fees, such as closing costs. But those are usually taken out of what you can borrow before you borrow it. It also has interest, which accumulates for a much longer period than interest on a standard home mortgage.

Another fee you have to be careful of is the fee for paying off a reverse mortgage early. Recent law changes have made it harder for lenders to penalize you for early repayment. However, they can still charge such things as “service” fees. Therefore, it is best to stick to the initial plan whenever possible, if you sign up for a reverse mortgage.

Pro: Many Reverse Mortgage Resources Are Available

Another pro of reverse mortgages is there are specialized counselors who can help you learn about them. There are also plenty of other resources available. Use as many of those resources as possible to learn how a reverse mortgage may alter your retirement lifestyle and long-term plans. Then you can sign an agreement with confidence.

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