A reverse mortgage is a popular option for seniors looking to retire comfortably or pay off small debts. Reverse mortgages are loans available for those 62 years old and better who are financially eligible by the U.S. Department of Housing and Urban Development’s standards. While there are many advantages to getting a reverse mortgage, the loan does provide some drawbacks.
High Monetary Costs – All loans for Texas real estate come with fees and can include the title insurance fee, interest rate, origination fee, appraisal fee, mortgage insurance fee and various other closing costs. Compared with a traditional mortgage, the total of all these fees is quite high. You may be required to pay fees that total up to 10 percent of your home’s value. Many reverse mortgages also have adjustable interest rates.
Loan Payback – If you move out of your home, you are required to pay back the loan. This could be an issue should you suddenly need to pay higher health care costs in a different type of care situation. The loan becomes due and payable after you move out, and payment is due according to the terms of your reverse mortgage loan contract. If you stay anywhere else except your reverse mortgage property for a full year, even if it’s not by choice, your loan will become due. You may also have to pay if you are unable to keep up with maintenance, taxes or insurance payments.
Personal Cost – Getting a reverse mortgage could affect your Medicaid eligibility should your total liquid assets exceed a predetermined amount specified by the government. If you face the situation where your loan becomes due, anyone living with you who is not part of the loan agreement would have to move out. The reverse mortgage guidelines define your dependents as “tenants,” so they must leave when you leave.
Equity Decrease – A reverse mortgage means that you are trading your Texas real estate for money. If you need to take out another loan that is based on the value of your home, you may see some consequences if your equity is significantly smaller than it was before the reverse mortgage. Ultimately, decreasing the equity of your home means less money will be left for your heirs. Your heirs would also need to pay off the reverse mortgage loan before they could take possession of the house. They will not be put into debt should they not pay off the loan. However, if they cannot afford to pay off the loan, they will not receive the property. There’s also the possibility that you may simply outlive your equity. You will then either have to pay off the loan and stay in your home or sell your home to pay off the mortgage.
Limited Use – While Home Equity Conversion Mortgages are the most common type of reverse mortgage, there are other loan options available with different restrictions. If you get a single-purpose reverse mortgage, you would only be able to use the money you receive for one lender-approved purpose, such as repairs or taxes. Some companies offer private loans called proprietary reverse mortgages that feature their own set of restrictions and are not insured and regulated by the federal government.
Any type of loan is bound to have its risks. Make sure you know the pros, cons and fine details of your loan before making the commitment.