Reverse Mortgage For Dummy - The Pitfalls Of Availing Reverse Mortgages
As with any financial investment option, reverse mortgages may be able to provide individuals the financial assistance they require. However, no financial investment option is perfect. Reverse mortgages, while being preferred by more individuals needing financial assistance, do have its share of disadvantages and pitfalls not just on the borrower but also on the financial institution as well.
Here are just a few of the reported pitfalls borrowers have experienced from taking out a reverse mortgage plan.
Diminished Inheritance Left to Children
One of the disadvantages that has been experienced by an individual who had taken out a reverse mortgage as a form of financial aid is that it diminishes the amount of inheritance that would be left and divided among the individual’s children and chosen relative at the time of his or her demise. Majority of those that take out a reverse mortgage plans are senior citizens who have just recently retired and are looking for a stable source of revenue to help them live out their remaining days in comfort. Traditionally, the home and other assets of an individual are among those that are left to the individual’s children or selected beneficiaries at the time of his or her death. Because of the growing popularity of reverse mortgages among the senior citizen population in the United States and the fact that the individual’s home equity would need to be transferred to the creditor or financial institution, the borrower, in effect, has robbed his or her children of any inheritance that they may have been expecting to receive after his or her demise.
Increased Inability to Meet Repayment
As with any mortgage or loan programs, the reverse mortgage taken out by a senior citizen would need to be repaid after the period of the reverse mortgage is completed. Because majority of those taking out reverse mortgage plans are senior citizens who have already retired, they only have minimal sources of funds to help them live through their remaining days. This being the case, the senior citizen is faced with the overwhelming responsibility of having to pay the full amount of the reverse mortgage at the time when they need to do so. As a result, the likelihood for them to be unable to pay back the amount taken out of the reverse mortgage which would, in turn result to the senior citizen to lose his or her home as a result of a foreclosure.
Limitations of Amount
Another disadvantage faced by individuals who have taken out a reverse mortgage plan is the amount that can be mortgaged through this particular mortgage program. While this may be primarily based on the equity value of the home that is used as a form of collateral, some financial institutions take into account a variety of other factors which are not commonly taken into consideration when other types of mortgages are taken out. Examples of this include the age of the borrower when the mortgage is applied for and the current interest rate.
Depreciation of Home Equity
One of the things taken into consideration is the equity value of the home to be used by the individual as a form of collateral for the reverse mortgage application. The equity of a home is derived by subtracting any existing loan of the property from the total fair market value of the home. The lower the equity value of a home used towards a reverse mortgage, the lower the amount that one may be able to take out.
This is not to discredit the potential of reverse mortgages. Rather, it is to provide you the information in order to make the right decision as to whether getting a reverse mortgage plan is the best option for you.
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