Real Estate

Truth about Reverse Mortgage Pitfalls

Story Published on August 28, 2008 ⋅  Email this Story ⋅  Print this Story ⋅ Post a comment ⋅

Reverse mortgage pitfalls are very real and is something you need to take very seriously when considering this type of loan.

Unless you came into this world with out your eyes or ears you have most likely seen all the ads on TV, the radio and in newsprint as well.

Although this type of loan may fit well for many people, and I am sure that it does, there are many caveats that you need to be aware of and pay close attention to when seriously entertaining a reverse mortgage loan.

There are many loan programs, over a dozen at the time of this writing, that are designed around the reverse mortgage concept.

Your first plan of action should be to seek out only those lenders who are offering a large selection of these types of loans for you to consider.

If the lender you talk to only offers you a couple of different types of loan packages you need to be very wary as these types of loans are probably designed by the lender themselves and may not offer you the best rates and terms you can find shopping around.

Reverse mortgage pitfalls need not to even occur if you are armed with the fact before seeking one of these loans.

Most often these types of loans are structured around a few basic requirements starting with your age. As an example, HUD requires you to be 62 while more conventional lenders will be willing to loan to younger people.

The main pitfall with this one is that the younger you are when the loan is made, the less interest you will be offered which can have dire consequences down the road.

Inflation! This ugly fact will never go away. As the cost of living increases year after year will your loan payment increase as well?

Your loan contract must stipulate a cost of living increase dictated by the local economy. If not, you must consider where you will be 10 years from now.

Another very serious reverse mortgage pitfall may come in the form of property taxes. Yes, you the home owner must pay these year after year. Have you figured those into your income calculations a decade from now?

Keeping up your property. Yes, the lenders will require this. Expenses such as roofing, heating, air conditioning, plumbing and on and on will pop up from time to time and you need to factor in these costs over the years as well.

Home owners insurance. Another things you must keep in mind. Your lender will require up to date insurance as they must protect their future investment. Again, you must included this into your overall income figures.

Finally, you must continue to pay for all the related utility costs to the property. As with the inflation factor previously mentioned, what do you think you will be paying for electricity 10 years from now?

So what is the bottom line on these types of loans? Well, these are but a few of the many you should take into consideration and discuss with your lender. There are more which you can discover online if you know where to look.

Add up all your expenses you will pay over the next decade and make sure these factors are included in any type of loan contract you agree to. The buying power you have today should be the same buying power you have 10 or 15 years down the road.

Reverse mortgage pitfalls? Maybe yes, maybe no. It all depends on how you structure you loan and the knowledge you have about it when that loan is created. Keep in mind that knowledge is power and only you decided how much power you will take to the table!

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