A reverse mortgage loan can be a great option, especially if you’re someone over the age of 62 who could use a little extra money to help pay the bills — or to simply improve the quality of your life. However, as many benefits as there are to taking out a reverse mortgage loan, just like any other type of mortgage loan, it’s not without its risks.
Common Reverse Mortgage Loan Risks
The following are a few of the reverse mortgage loan risks that you should be aware of before you decide to apply:
- Not knowing the terms – A lot of borrowers will make the mistake of applying for a reverse mortgage loan without understanding the terms. They’ll see the benefits of a reverse mortgage loan without considering any of the possible drawbacks. For example, upfront costs and interests rates tend to be higher than other types of loans. Make sure that you read through the terms of your loan before you decide to take out a reverse mortgage loan on your home.
- Your heirs may not be able to inherit your home – The way a reverse mortgage loan works is that it draws on the equity that you have in your house. However, once you pass away, the remaining amount of the loan will be due immediately. If you’ve left the house to your heirs, they will either have to pay off the loan in full or pay 95 percent of the balance if they want to keep the house. If your heirs are unable to afford this, then the lender will sell the house in order to repay your loan. Once the house is sold, the lender only takes what money is owed to them — the rest will go to the estate.
- Surviving spouses could face foreclosure – If you’re married and you take out a reverse mortgage loan, then odds are you’ll put the name of the spouse who is older than 62 in order to qualify. If the older spouse passes away and the remaining spouse is under 62 and wasn’t added to the loan, they could be held responsible for the remaining balance or face foreclosure. In some cases, the younger spouse can be added to the loan at a later date, but make sure that this option is included in the contract.
As long as you understand the risks, a reverse mortgage loan can be very beneficial. For more information about reverse mortgage loans, contact us at the Alliance Mortgage Group today.