Mortgages > The Disadvantages Of Reverse Mortgages

The Disadvantages Of Reverse Mortgages

by: Charles Kirkendall

A reverse mortgage can be an attractive option for many home-owning seniors that are having a hard time making ends meet. With a reverse mortgage, a senior homeowner will receive money for their home equity from a lender without having to make repayments for as long as they live in their home. So with the right reverse mortgage a senior homeowner can maintain their standard of living while retaining ownership of their home.

This of course, is the picture that all the reverse mortgage companies try to paint for prospective borrowers. Nonetheless, there are many differences that have to be understood between reverse mortgage's and conventional loans. If these differences are not understood, they can cause financial problems for reverse mortgage borrowers.

Disadvantages of Reverse Mortgages.

The first disadvantage is the relative cost of a reverse mortgage. Reverse mortgages tend to be very expensive when compared with a conventional mortgage. This is due to the rising-debt nature of reverse mortgages. For example, a typical reverse mortgage may provide a homeowner with a $300 per month payment with a yearly interest rate of 12 percent compounded monthly. Over the course of ten years, the homeowner will receive $36,000 in payments, but will owe almost $70,000-almost twice as much as received.

The second disadvantage is the complex and confusing contracts of reverse mortgages, that can have a tremendous impact on the overall cost of a reverse mortgage to the borrower. The complexity of the contracts often allow lenders and third parties involved in arranging reverse mortgages to not fully disclose the loan's terms or fees. These numerous other front-end and/or back-end fees can also quickly drive up the cost of a reverse mortgage. These fees can include origination fees, points, mortgage insurance premiums, closing costs, servicing fees, shared equity and shared appreciation fees.

Out of all these fees, the shared equity and shared appreciation fees should be avoided, as they can quickly raise the cost of the mortgage without providing any benefit to the borrowers. As an example, a shared appreciation fee can give a lender an automatic 50% interest in the difference between the current value of the home when the loan is signed and the appreciated value of the home when the loan is terminated. What makes the fees unfair is the fees have no relation to the amount that is borrowed.

The third disadvantage is the reverse mortgage payments can affect eligibility for old age pensions, Medicaid, or supplemental Social Security income. Senior's may not even realize this problem until after they already have their reverse mortgage, and only then do they find out that this can have the opposite affect on a seniors finances then what they were trying to accomplish in the first place by taking out the reverse mortgage.

Another disadvantage is the fact that reverse mortgages reduce the value of a senior's assets and estate. This will affect the amount of inheritance received by the borrower's heirs.

How to avoid these hazards

The best way for a senior to avoid these hazards is to be careful when choosing a lender, by obtaining bids from three separate lenders. They should take these contracts to a reverse mortgage counselor for evaluation. This will allow them to accurately evaluate the three contracts before deciding on best one for their situations.

About The Author

Charles Kirkendall writes articles on reverse mortages and other senior financial issues. Visit reverse mortgages http://reverse.settle-today.com for more information and resources.

Mortgages: What You Need To Know

Mortgages: What You Need To Know

by: Marvin Jones

A mortgage is legal agreement or contract that says that a party has agreed to put up a property, a house or a piece of real estate, as security to get a loan. By doing this, the person getting a loan can buy a piece of property that he initially cannot afford. Still, if by any chance, he cannot pay for the loan, the bank will have to foreclose the property and resell it to others.

The lender will hold the title of the property until after the full amount of the loan is paid for plus interest. Depending on the terms of the loan, repayment can last until a couple of years. Two of the most common mortgages in the country are the fixed-rate mortgage and the adjustable-rate mortgage.

As shown by the name, fixed-rate mortgage has an interest rate that stays the same all throughout the life of the loan. If for example the loan is termed for 10 years, then the interest rate will stay...

Mortgages: What You Need To Know

Mortgages > Mortgages: What You Need To Know

Understanding Fixed-rate Mortgages

Understanding Fixed-rate Mortgages

by: Chileshe Mwape

A fixed-rate mortgage is a mortgage on which the interest rate is set for the term of the loan. Your interest rate stays the same for the term of the mortgage or for a specified period of time. Most people use a fixed-rate mortgage. In fact, about 75 percent of all home mortgages have fixed rates. The main advantage of a fixed-rate mortgage is that you always know exactly how much your mortgage payment will be, and you can plan for it.

A Fixed Rate mortgage will offer you the security of knowing that your mortgage interest rate will not change during the term of your fixed rate. For example, a lender can offer a 30-year fixed loan to a homebuyer at a 6.5% interest rate. The loan is locked in to the 6.5% interest rate, even if the market interest rate rises to 8.0%. Conversely, if the market interest rate decreases to 4.5%, you will continue to pay the 6.5% interest rate. A Fixed-Rate Mortgage...

Understanding Fixed-rate Mortgages

Mortgages > Understanding Fixed-rate Mortgages

Personal Finance ? Why You Should Compare, Not Despair

by: Rachel Lane

Sorting out your personal finances can be a tricky and exasperating time. Whether you are looking to obtain money through a loan, protect your finances with life insurance, medical, travel or car insurance, save some money through an individual savings account (ISA), apply for a credit card or a mortgage, change a telephone or fuel utility supplier, or simply decide what the best current account is for your needs, the choices are seemingly endless as well as being extremely complicated. They can also be potentially serious if you get it wrong. With so many options, and so many companies trying to get you to use their product, it is difficult to know where to turn.

The first method of working out your own finances is to review your needs and compare the products on offer to meet those needs. You could, if desired, visit the banks one by one, burning calories and shoe leather...

Personal Finance ? Why You Should Compare, Not Despair

Mortgages > Personal Finance ? Why You Should Compare, Not Despair

Bad Credit Mortgage ? Sometimes Bad Credit History Can Be Rewarded?

by: Troy Francis

When you have bad credit you wonder what lenders will offer you for a mortgage deal on your home. The big obstacle, as you know, was your bad credit history. To add to the all the fears, there were a few pals of yours who held that the deals offered to you will not be as good as regular mortgages.

However, before you decide not to mortgage because of bad credit history, let me say,
mortgage lenders generally do not give much importance to bad credit history. Through this article, we will inform borrowers of bad credit mortgages which are basically mortgages for the people with bad credit history and the options for bad credit.

Ok! Why is it that mortgage loan providers ignore bad credit history while offering bad credit mortgage? Is it because they don?t fear for payment? Well, fact of the matter is that most borrowers with bad credit history do...

Bad Credit Mortgage ? Sometimes Bad Credit History Can Be Rewarded?

Mortgages > Bad Credit Mortgage ? Sometimes Bad Credit History Can Be Rewarded?