When researching a reverse mortgage, the disadvantages are never easy to find. This article was written to point out the facts that most sales people won’t tell you.
1. There is no more interest write off.
a. If you have made a mortgage payment in the past, you got a 1099 form. This form would show how much interest you paid. You won’t be getting that after you complete a reverse mortgage. You have only accrued interest, not paid it, so there is nothing to write off. Normally, the only time that a reverse mortgage gets paid off is when the home sells. this is when you would get your interest write off.
b. Not making payments any longer is probably more important than writing off a bit off interest. In some cases, very few, the loss of a tax write off could cost you more in taxes. If you are concrned that this could effect you, then speak with a tax professional.
2. The mortgage balance will grow over time.
a. Not making payments on a loan does not make it free. Interests accrues monthly. If you are not paying monthly payments your balance will increase. The lender charges you interest and if you don’t pay it, it gets added to your loan balance.
b. Trading no payments today for a larger payoff tomorrow. Most reverse mortgages are paid off when the borrower passes away, so they have permanently deferred the monthly payments.
3. Fees on a reverse mortgage are excessive.
a. If you are comparing the fees on a reverse mortgage, the fees will seem more expensive. The fact that there were no monthly payments seemed to justify the higher cost.
b. Now there are programs that have cut the fees in half. It would be wise to check into the loans again if cost was the reason that you held off in the past. You will be surprised on how much the fees have been reduced.
4. You may leave your heirs a little less.
a. Make no mistake about it, you are spending the equity in your home. Some will say this reduces the amount you are able to bequeath. It is possible that you are helping them more than you know.
b. Are you really shorting anyone, just because you spent some equity? You will now have more money for medical or living expenses, all because you got rid of the monthly housing payment. Now that you have more money to spend on you, it is less likely that your children will need to contribute to your needs. Just that alone will help them save for their own retirement, without having to worry about your finances. In the case you are fortunate enough to have your home paid for, a reverse mortgage will help you get additional cash monthly or in a lump sum to take care of some of life’s necessities.
The purpose of this argument was to present the good side of the so called reverse mortgage disadvantages. Ideally, you will recognize that anything has a bad side to it, and reverse mortgages are no different. You just have to see whether or not it makes sense in your situation. There are many choices of which reverse mortgage is right for you. So once you decide you want one, speak with a loan officer and get help picking the right one.
I have been originating mortgage loans since 1998, devoted to educating retirees about the reverse mortgage disadvantages for the last many years. Training senior citizens about the possibilities of an incredible retirement has grown to become my passion. It is very fulfilling to demonstrate to a retired person the ways to make their retirement one they imagined.