dangers of reverse mortgages

Many seniors I talk with have some nervousness about the whole idea of reverse mortgages. The whole idea of taking out a mortgage on a free and clear house would make anyone nervous. Reverse mortgages are not always the best step for seniors to take. A reverse mortgage is a very peculiar mortgage that does have some drawbacks. I will explore a few of these.

The first danger of a reverse mortgage is the actual cost of one. That cost is driven by the fact that private mortgage insurance is an upfront fee paid at the onset of the loan. Also the typical charge of 2% loan origination is added in with the normal mortgage costs of an appraisal, title, and lender fees. To make it a worthwhile en devour you should plan on staying in the house for 5 years. When trying to compare the closing costs of different lenders you should be using the total annual loan cost (TALC). If you have an adjustable rate loan, it will be impossible to tell exactly the interest rate and costs in the future but you can at least get an idea.

Reverse mortgages are relatively new in loan terms. Since a majority of these loans have only been taken out recently, there is not a lot of information about them. We really don't know if better products become available, or if any unknown risks pop up. Since they are regulated by HUD, it should be fine, you never know. Along with this is the fact they can be very hard to understand. Almost everyone gets ow a mortgage works but ask someone about a revers mortgage and you could get a hundred different answers. Then factor in the different varieties and the fact they play by different rules.

If you have an expensive house it may be very difficult for you to get a lot of money with a government sponsored reverse mortgage. Generally speaking reverse mortgages are for the average American not the million dollar house types. That is not to say they can't get a reverse mortgage it's just the options are limited. with limite options come inherent dangers like costs, pricing, etc.

Reverse mortgage counseling is the main protection for seniors against mortgage and financial fraud and abuse, is required for some but not all loans. The way counseling is done for reverse mortgages is not enough to protect potential borrowers. Some of the major flaws include situations where reverse mortgage counselors are not neutral parties because they are affiliated with the lender. Unfortunately, this practice is all to easy since the checks and balances are not always so easy to enforce.

Reverse mortgages are a very good financial tool for our seniors. the benefits are many but that doesn't mean they are perfect for everyone. Nearly every time I compare a reverse mortgage to other plans the reverse comes out ahead. Your situation is unique though so I highly recommend you sit down with a qualified representative and find out if it is for you.