Reverse Mortgage

Home > Loan Types > Reverse Mortgage
	Interest-Only	Free Calculator	Home Equity	Refinance

Mortgage Calculator

Loan Types

Predatory Lending

Site Map

Software

Contact

Reverse Mortgages

I. Introduction
II. Reverse Mortgage Disadvantages
III. Find a Reverse Mortgage Counselor or Agency
IV. Apply for a Reverse Mortgage

Reverse Mortgage Disadvantages

As mentioned earlier, with a reverse mortgage, no matter how long you live in your home you will never owe more than the value of your home. But what happens if you move, die, or sell shortly after taking out a reverse mortgage? Any of these situations can become rather expensive since reverse mortgages come with relatively high closing costs, origination fees, servicing fees, and in many cases insurance premiums designed to protect the lender. All costs are added to the loan total, on which you pay interest.

Also, reverse mortgages are adjustable rate mortgages. This means that as the prime interest rate goes higher, so can the interest rate of your loan. This will in no way affect the payments you receive, however, the amount which will eventually be repayed can be higher.

Reverse mortgages are considered the "reverse" of a conventional mortgage (the type of mortgages normally used to buy a home) since they follow the "rising debt/falling equity" formula. In other words, the size of the loan increases due to compound interest, while the amount of equity continues to fall as your receive payments. Conventional mortgages follow the "falling debt/rising equity" formula since your rising property value and monthly payments increase the equity in your home while at the same time reduces your debt.

Supplemental Security Income (SSI) and Medicaid can be affected by payments from a reverse mortgage. If the during a calender month the total liquid assets of a singel person exceed $2000 or $3000 for a couple, you may lose your (SSI) and Medicaid elligibility. This can be avoided by spending your payments during the month you receive them. Your Social Security and Medicare benefits are in NO way affected by payments from a reverse mortgage.

Of course, you will still have to maintain the home, pay property taxes, and carry property insurance.

Federal Truth-in-Lending laws take some of the mystery out of reverse mortgages, but still allows certain key pieces of information to be hidden from an applicant, such as, the Total Annual Loan Cost (TALC). Lenders do not have to reveal TALC rates on a reverse mortgage loan until after it has been applied for. This can make comparison shopping before you apply difficult. During your federally required counseling session, be sure to bring this point up and ask for sources that can provide reverse mortgage TALC rate comparisons. (Note: TALC rates assume all borrowers are single females.)

Next: Find a Reverse Mortgage Counselor

Updated: Nov 2005