Four Reverse Mortgage Disadvantages

Posted by David Prulhiere

August 3, 2010

1. Mortgage interest write-off “goes away”:

a. Do you recall the 1099 form from your lender that show how much interest you paid? Well, since you don’t make payments on a reverse mortgage, you won’t be getting that form. You aren’t paying interest, you are accruing interest. You will get a 1099 upon paying the interest, and that usually happens when you sell the home.

b. Is the interest write off more important than not having house payments? Would you prefer to have the write off or no payments?

2. Accruing interest or your balance growing:

a. Interest accruing on your loan without making payments means the amount you owe on your loan will increase over the life of your loan. The interest that is charged monthly is added to your balance, making it get bigger each month.

b. You are exchanging a larger payoff tomorrow for no payments today. Reverse mortgages are usually paid off when the borrower passes away, thereby deferring payments permanently.

3. Reverse mortgage fees are expensive:

a. A regular loan has much lower fees than a reverse mortgage. If you consider that on a normal loan you have monthly payments but on a reverse mortgage you don’t, maybe there is some justification for the higher fees.

b. New programs have recently been released that have cut the cost of a reverse mortgage in half from what they used to be. If you didn’t do a reverse mortgage before because of the cost, check again. You will be surprised on how much the fees have been reduced.

4.You leave less money to your kids:

a. By spending your equity, you reduce the inheritance of your heirs. This is important to many who would like to leave a sum of money to their children or grandchildren, but there may be other ways to leave them money.

b. Does spending your equity really deprive anyone of an inheritance? If you currently have monthly house payments, and you are able to remove it, you will have more cash for maintaining your independence. Your children are less likely to have to chip in on your expenses. This will allow them to save their money while enhancing their retirement. On the other hand, if you are fortunate enough to have your home paid for, the money you receive from the reverse mortgage could help with your medical expenses or just maintaining the home.

You will see there are two sides to these so called “reverse mortgage disadvantages”. Just weigh the objection against the need to see if the loan makes sense to you.If you would like to bounce some ideas off of someone, email me or give me a call. You can get my contact information online at www.redwoodreversemortgage.com. You will also find a lot more information on reverse mortgages there.

Have you heard other reverse mortgage disadvantages? Follow the links if you are looking for more reverse mortgage information. You can get a free education with no obligation. You can even use our reverse mortgage calculator for free.

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