Cons of a Reverse Mortgage

Imagine paying $30,000 in costs to get a mortgage for $368,000 with a 9 percent interest rate. Who in their right mind would? Well, welcome to the cons of the reverse mortgage!

The reverse mortgage is a relatively new financial product on the market. It is available to individuals 62 and older. The basic idea is a lender will make payments to you in exchange for an interest in your home. It is essentially a traditional mortgage where the bank pays you instead of you paying it.

The reverse mortgage is a controversial financial tool because the cons are so extreme. There is even an intermittent move afoot to remove them from the market. Why? Well, lets look a little closer at the cons or a reverse mortgage.

The first disadvantage is cost. The typical costs you have to pay to get a reverse mortgage range from $10,000 to $30,000. The reverse mortgage has a cap of $368,000 or 50 percent of your equity, whichever is less. This means you are giving away up to 10 percent of your equity as a cost of getting a loan. That is outrageous!

The second disadvantage is the interest rate. Once the lender starts making payments to you, it charges an interest rate on the growing debt. Whereas traditional mortgages carry interest rates in the five to seven percent range, you will be paying 9 percent or more on yours. Keep in mind you are giving the lender your hard earned equity and it is charging you more for it! Also, this interest is not deductible.

Perhaps the biggest of the cons of a reverse mortgage has to do with control. Simply put, you are giving it away. For most people, their home represents their biggest asset. By entering into a reverse mortgage agreement, you lock up that asset. It might make sense to do so if you were getting a great deal, but you are not. You are getting a terrible deal. There is no need for you to pay outrageous costs and interest rates on the equity you have spent years building up. Dont throw away your equity!

Get more information on reverse mortgages at UFCAmerica.com

Meer Bezoeker Website