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Understanding Reverse Mortgages - Problems and Opportunities with Reversing Your Mortgage

By Edited Nov 13, 2013 1 2

The Undeniable Problems with Reverse Mortgages

During a reverse mortgage, a senior citizen is paid for his/her home equity from a particular lender. This relieves him/her and the spouse from any installments to be made while they live in the house, only after they are deceased or fail to meet the terms of the agreement, the lender takes over the possession. Though this sounds to be a fair deal there are a number of problems with reverse mortgages.

There are a number of people who find the reverse mortgage a very attractive option. But there have been many issues that they have to face.

Misleading Lender Companies

Many times the reverse mortgage companies try to create a false image in the minds of the borrowers just to attract them as reverse mortgage can be quite beneficial to the lender. It is very important that you learn about the various disadvantages. The very first of the problems with reverse mortgages is the relative cost. This is quite an expensive option when compared to the conventional mortgage. You end up giving up on a good part of your equity in turn for annual payments that might not be worth it.

Hidden Fees and Details

The second in the list of problems with reverse mortgages is the cumbersome contracts of the reverse mortgage. You may not be aware of the fact that the procedures of the mortgage contract are very complex and complicated. Due to the complex nature, there are many lenders and third parties who are able to hide some details of the mortgage. There would be a number of other hidden fees which could be important. Complete disclosure of all the details is very essential. Moreover, due to the hidden fees, there would be an increase in the cost of the reverse mortgage again. The various hidden fees would include closing costs, mortgage insurance cost, origination fees, shared appreciation fees, servicing fees as well as shared application fees.

If you are aware of the fees, you will be able to avoid shared equity as well as the shared appreciation fees. The major issue is that these fees have no relation with the amount that is borrowed and still the borrower is required to pay for these.

Reduction in Asset Value

The last disadvantage is that by taking the reverse mortgage the individual would be reducing the value of their assets as well as the estate. Indirectly, it would be reducing the property inherited by the borrower’s heir. All this could be very harmful for the borrower hence there should be care taken before you take the reverse mortgage.



Aug 29, 2011 5:45pm
Thanks Zack for explaining reverse mortgage.
Aug 29, 2011 5:48pm
This comment has been deleted.
Aug 29, 2011 5:56pm
Thanks for reading, Lynsuz!
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