What Are The Disadvantages Of A Reverse Mortgage

Section 8. What Are The Disadvantages Of A Reverse Mortgage

There are several potential disadvantages of reverse mortgages.

First, the biggest disadvantage of a reverse mortgage is that once you have used all of the money that you can received from a reverse mortgage, the money is gone and you probably will not be able to receive or borrow any more money using your home as collateral. Unless you home's value has increased, you will not be able to receive any more money from a reverse mortgage after you have reached the maximum amount set by your reverse mortgage lender. Also, because of the way reverse mortgages are set up legally, you will not be able to borrow any additional money from another mortgage lender even under a normal mortgage loan.

A second disadvantage is that reverse mortgages can restrict or limit your ability to move to another home if you need money from the sale of your home to pay for a new home. With a normal mortgage loan, you make payments, your debt goes down, and your equity goes up. With a reverse mortgage, you do not make payments, your debt goes up, and your equity goes down. Therefore, when you sell your home which is subject to a reverse mortgage, you will receive less money after paying off the reverse mortgage than you would have received if your home was subject to a normal mortgage. Because you receive less net money, you may not be able to buy another home and move.

A third disadvantage of a reverse mortgage is that it will reduce the amount of money that your heirs will inherit by virtue of your home. Your heirs will still inherit your home, but because the reverse mortgage debt keeps going up, there is a larger mortgage to pay off, and when your home sells, there will be less net proceeds paid to your heirs.

This ebook is for general information only and may or may not be applicable to your situation. If you have any questions whatsoever, talk with a mortgage broker or lawyer licensed in your state.

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