Disadvantages of Reverse Mortgage

A reverse mortgage is a unique mortgage that offers seniors an opportunity to tap the equity they have in their home. This is an advantage because it is tax-free. All it requires is, the candidate should be more than the age of 62 and should be owner of the home or have minimum equity under mortgage. The best part is that the candidate is not required to payoff the loan rather he receives the payment from the lender! The candidate even receives tax benefits while repayment of the reverse mortgage.

Reverse mortgage appeals to senior citizen householders for its advantages. However, reverse mortgage carries a few disadvantages. Disadvantages of reverse mortgage include homeowners that indirectly receive the borrowed amount from reverse mortgage by mortgaging the equity in their home. The greedy heirs of the senior candidates discourage taking reverse mortgage. They feel scared that the candidate will be "investing" inheritance, in the form of equity associated to home, left for them.

Don't be discouraged

Disadvantages of reverse mortgage do not discourage the candidates as they are attracted by the numerous advantages it carries. U.S. government, for its 34,000,000 population of 65 and above, has turned its concentration in this field and organization like HUD are playing vital role in the development and reliability of reverse mortgage.

Disadvantages of Reverse Mortgage includes Reduction in Post Retirement Benefits

Senior citizen householders face another problem while utilizing the payment received through reverse mortgage. Senior citizen receives retirement benefits in the form of Supplementary Social Income (SSI) or Med-Cal in California (Medicaid). These benefits are liable to be reduced if the amount received through reverse mortgage income every month is not entirely spent by the applicant.

However benefits like Medicare and Social Security are not affected by reverse mortgage source income. Further disadvantages of reverse mortgage include high interest rates and processing charges.

The interest rates and processing charges of reverse mortgage is considerably high. Interest rates varies from 5.9% - 6.3% (approx)/annum depending upon the plan. The upfront charges vary from .18-.2 % of the equity under mortgage. Other processing charges are similar to normal mortgages.

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