Dangers Of Reverse Mortgages

We often hear that if it's too good to be true, then it isn't true. A reverse mortgage where you receive money, but do not have to pay it back as long as you live in your home, sounds too good. But it is true. However, there are some dangers of reverse mortgages.

With both a regular mortgage and a reverse mortgage there are the normal dangers of having to be careful of the interest rate and the terms of the mortgage. If the interest rate is too high or the terms are unfavorable, you can have a problem with either type of mortgage.

The real danger with a reverse mortgage is how you use the money that you receive. Remember, as you use your reverse mortgage, the money is gone. Your debt goes up and your equity in your home goes down.

Most people will suggest that you wisely use the money that you receive.

- Don't buy unnecessary items. You decide yourself what is necessary and what is unnecessary. Just remember that if you buy something that is not a necessity, you may not have enough money later to buy items that you have to have or enough money to pay bills.

- Don't invest the money that you receive. The interest or return that a person receives from an investment is directly related to the risk of losing the investment. In other words, the greater the expected return from an investment, the more likely that a person will lose the money that he/she invested. It is extremely rare for even a safe investment to be worth more to a person than receiving money from a reverse mortgage with which to pay bills or buy necessary items.

- Don't buy an annuity. An annuity is basically an investment with a fixed return. Rarely will an annuity be worth more than having the money from a reverse mortgage.

While it is really not a danger of reverse mortgages, but more of a disadvantage, there will be less to leave to your heirs upon your death. As you use your reverse mortgage, your home equity goes down. If you live long enough, the result may be that your heirs will receive nothing from your home upon your death. You will have used all of your home's equity during your life.

This is general information only. If you have any questions about reverse mortgages, talk with a mortgage lender, and if you have any legal questions, talk with a lawyer licensed in your state.

Stop! Wouldn't you like to know if a reverse mortgage is right for you? Get more information here on a Reverse Mortgage. And click here for more insights on Reverse Mortgages Help Senior Homeowners.

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