Reverse Mortgage Pitfalls
Posted by financialpress on August 13th, 2008
Reverse mortgage pitfalls are very real and is something you need to take very seriously when considering this type of loan.
Unless you were born missing your eyes and ears you have probably seen the countless ads on TV and in print as – well as listening to the pitches showering your ears from the radio.
This type of loan probably fits well for many people as I’m certain that is does but there are many caveats that you need to pay very close attention to and be aware of when considering a reverse mortgage loan.
At the time of this writing there are well over a dozen different types of the loans floating around out there with this type of concept.
Your first action should be to only do business with a lender who will offer you multiple choices for this type of loan package.
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.
Once you arm yourself with the facts before you go shopping, reverse mortgage pitfalls need not even occur.
These loans are structured around basic requirements which start with your age. For instance HUD requires you to be 62 years of age while more conventional lenders will offer you a loan at younger ages.
The major pitfall here is that the younger your age when the loan is made, the less interest you will be offered on that loan. This can have major consequences for you down the road.
The inflation factor. It will never go away so as the cost of living expenses grow 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 reverse mortgage pitfall is that you must be aware that you are required to pay all the yearly taxes on your property. Make sure you figure that into your yearly income as from these loans well.
Property upkeep. Yet another expense factor you must not ignore! Expenses such as your plumbing costs, HVAC, roofing, flooring and a tons of other things that pop up from time to time. You must include those costs as well.
You must pay for all your housing insurance. Your lender will require up to the minute insurance coverage as they need to protect their investment. Again, make sure these costs are included.
Lastly but far from least in your current utility costs. How much to you think you will be paying 10 years from now. They will continue to increase as previously mention in the inflation factor I discussed earlier.
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.
Take all your cost you expect to pay over the next 10 to 15 years and make sure the contract you agree to will adjust upwards as these costs increase. The power of your dollar today should have the same power 10 years from now.
Reverse mortgage pitfalls? Yes but certainly not always. Depending on how you structure you loan it could work out beautifully for you in the end. It all depends on how much knowledge you are bringing to the table and remember that knowledge equals power and only you decide how much power you will bring to that table!
