Reverse Mortgage Disadvantages – 6 Things to Consider Before Applying
A reverse mortgage loan can be a great way for seniors to secure extra income in retirement, but there are some things to be aware of before applying. Here are six reverse mortgage disadvantages to consider before deciding if this type of loan is right for you.
1. You may not qualify.
In order to qualify for a reverse mortgage, you must be at least 62 years old and have substantial equity in your home. If you don’t meet these requirements, a reverse mortgage loan may not be an option for you.
2. You could owe more than your home is worth.
If you take out a reverse mortgage and eventually need to sell your home, you could end up owing more than the sale price of the home. This is because the loan balance grows over time and interest accrues on the outstanding balance.
3. You may have trouble getting approved for a traditional mortgage.
If you later decide you want to get a traditional mortgage, the fact that you have a reverse mortgage could make it difficult to get approved. This is because traditional lenders may view you as a higher risk borrower.
4. You’ll have to pay taxes on the loan proceeds.
The loan proceeds from a reverse mortgage are considered taxable income. This means you’ll have to pay taxes on the money you receive from the loan.
5. You could lose your home if you don’t stay current on property taxes and insurance.
If you default on your property taxes or homeowners insurance, you could lose your home. This is because these payments are typically required in order to maintain the loan.
6. You may not be able to leave your home to your heirs.
If you have a reverse mortgage, your heirs will be responsible for repaying the loan when you die. If they don’t have the money to do so, they could lose the home.
Before taking out a reverse mortgage, be sure to consider all of the potential disadvantages. This will help you decide if this type of loan is right for you.