DISADVANTAGES OF THE REVERSE MORTGAGE LOAN



THE REVERSE MORTGAGE

All products in the market are deemed either fit or unfit based on the consumer’s perspective as well as their choice of what to consider. In light of the advantages which accompany the reverse mortgage loan it is vital that we also are well aware of the disadvantages of the same. The following are some disadvantages associated with the reverse mortgage loan.

  • The home-owner is required to pay insurance, maintenance, repair and property taxes. Failing to pay the above renders the loan due, hence they should be paid promptly as stipulated.
  • In case the borrower decides to roll in some of the fees into the loan, such as broker’s fee and insurance premiums, an interest on the same is attracted and the borrower will have the burden of further interest above the interest of the mortgage loan.
  • The rates which govern interest rates on reverse mortgages are variable, unpredictable and they fluctuate with market hence they could be high and unsuitable or they could be low and easily affordable which is a challenge due to this unpredictability.
  • Usually, upfront costs and interest rates for the reverse mortgage loan are higher than those of the traditional mortgage loans hence more load some and more cumbersome during repaying.
  • The loan repayment scheme involves selling of the home in order to gather up enough funds. At times, the funds acquired from the sale are only enough to cover for loan repayment and no extra money is available to leave behind for heirs of the borrower.
  • The reverse mortgage requires the borrower to be well informed of the stakes involved in the process of both borrowing and paying of the reverse mortgage loan. In line with this, the borrower is forced to attend classes to learn more about the mortgage loan as well as go through compulsory counseling by an FDA certified counselor to ensure that the borrower is well-informed before agreeing to the terms of the reverse mortgage loan.
  • Once the home mortgage loan is due and the time of closing comes, in case the borrower has spent more than the value of the home, they are required to pay off the excess using their own money or proceeds from the reverse mortgage loan.
  • The Home Equity Conversion Mortgage as a source of income comes to an end when the home equity term comes to an end as well, or when the borrower sells the home or the home is not the primary place of residence for 12 consecutive months, or if the borrower passes away.
  • The equity of the individual reduces with each payment made. This is a challenge because in future, the equity available may not be enough for the estate.
  • Once the last borrower who remained surviving passes away, the loan requires that it is repaid before the title is transferred to the heirs of the homeowner.


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