Reverse mortgage is the ideal tool for retired or elderly citizens to take out an income in any form i.e., installments or lump sum by putting equity which they have raised in their homes. It is really helpful for elderly citizens who are in great need of income to meet their everyday expenses, but still it has some drawbacks. These drawbacks are listed below:
High Fees & Charges
Individuals taking out reverse mortgage loan putting the equity on their home, but still banks charge them a high fee to initiate their transactions. In reality, ReverseMortgage.Org stated that as a portion of a reverse mortgage, homeowners may sometimes be required to pay of an initiation fee that is $2,000 or 2% of the total amount of loan. Many homeowners add this fee into the amount of loan and pay off it with interest on loan over the term of loan.
In addition to this fee, there are several other fees that homeowners are required to pay off. These fees include appraisal fee that can be of several hundred dollars, a recording and credit report charge that is about $200, a flood certification and a pest inspection fee that is about $150. Homeowners may be responsible to buy mortgage insurance coverage and for this they have to pay off a service fee that ranges from $30 to 435 per month.
Transfer of Your Family Home to Your Children
Usually parents want to pass their family home onto their offsprings. However, with reverse mortgage even though the lenders do not take the home’s title, borrower has to pay off the mortgage within a given period of time with interest. In most of the cases, borrowers repay the loan by selling their home and after that they turn over the proceeds or a part to their bank.
Many families buy an insurance coverage on the homeowner and they use their adult child or the lender as the beneficiary. This strategy helps such families to repay the bank without having to sell their home upon the death of the homeowner. It is advisable to you to consult with an authentic and expert insurance agent to find out the best option to make sure that if such insurance policy is good enough to fulfill the outstanding debt.
Affect on Future Financing Abilities
An individual is said to be creating a big liability when they start a reverse mortgage. It is because they have to repay the loan with interest. However, many borrowers do not realize that they are more likely to hurt their future financing ability by establishing a reverse mortgage.
