The idea of getting money back from your lender instead of having to pay them might seem incredibly appealing if you’re a homeowner. As such, you might be jumping at the chance to take out a reverse mortgage loan, especially if you’re 62 or older and could use the extra money. However, while reverse mortgage loans aren’t necessarily too good to be true, it’s worth noting that there are some potential disadvantages that you should be aware of.
The Disadvantages of a Reverse Mortgage Loan
The following are some of the possible disadvantages of taking out a reverse mortgage loan that you should be sure to consider before you make the decision to apply for a reverse mortgage loan:
- Interest rates and fees are higher – When compared to a regular mortgage loan, reverse mortgage loans do have higher interest rates and fees (which include closing costs, lender fees and more). Interest rates are often around 1.5 percent higher than those of normal mortgages.
- You can’t refinance – When it comes to regular mortgage loans, you can typically refinance down the line if interest rates drop to a more beneficial number. If you take out a reverse mortgage loan, you’ll be locked into your initial terms, which means you won’t be able to refinance or renegotiate at almost any point.
- The loan could burden your heirs – Once you pass away, whoever the house is left to will have to either pay the loan in full or pay 95 percent of the balance in order to retain ownership. Otherwise, the lender will have the right to sell the property in order to pay off the balance of the loan. Any remaining proceeds will go to the estate. However, this means that if you were planning on leaving your house to someone in your family, then you should consider their financial position before taking out a reverse mortgage loan.
- Your spouse could face foreclosure – If your spouse isn’t on the reverse mortgage loan because they were younger than 62 at the time that you took the loan out, it could mean trouble if you pass away since they will be responsible for paying off the loan right away. If they can’t, they will face foreclosure.
These are some of the potential disadvantages of taking out a reverse mortgage loan. However, if they don’t affect you, then a reverse mortgage loan can be hugely beneficial. Contact us at Alliance Mortgage Group for more information today.