Understanding The Dangers Of A Reverse Mortgage
A reverse mortgage allows borrowers over the age of 62 to convert their home equity into tax-free income without leaving their current home or making mortgage payments. Borrowers do not need an existing income to qualify.
There are different types of reverse mortgages, however all of them are similar in certain ways. With a reverse mortgage, you are the owner of your home just like when you had a regular mortgage. You are still responsible for paying your property taxes and hazard insurance and for making your own repairs.
When the mortgage is over, you or your heirs must repay all of your cash advances plus interest. Most reputable lenders don’t want your house; they want repayment.
One danger of a reverse mortgage is when you no longer use it for your primary residence. This means if you have to go to a hospice, nursing home or intend to live in another home and use the house as a second home the bank will call the debt due.
Another fact to ponder is that most reverse mortgages are almost exclusively offered with adjustable interest rates. Adjustable rates are still standard practice and you are almost certain to be offered this option to begin with. However you are much better off with a fixed rate mortgage. There are fixed rate programs available and at today’s rates adjustable rates are only going to go up in the future.
Finally, be aware that if you do not maintain your insurance and taxes as they deem responsible they can call the loan or force an escrow account on you.
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