Mortgages > The Disadvantages of Reverse Mortgage

The Disadvantages of Reverse Mortgage

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 http://reverse.settle-today.com for more information and resources on reverse mortgages.

Home Loans and Mortgages ? Tips to Avoid Foreclosure

by: Charlie Essmeier

Today?s real estate market is a volatile one; prices are at record levels and Interest rates are favorable, but foreclosures are increasing. Wages haven?t kept up with home prices and some buyers who had to stretch to find a way to obtain a mortgage in the first place are having trouble making their payments. Usually, if a buyer cannot meet his or her mortgage obligation, the lender forecloses, taking the home and leaving the buyer without a place to live and a tarnished credit record. If you are having problems paying your mortgage, can you avoid this scenario?

Depending on your type of mortgage and your lender, you may have other options. Most lenders, wary of rising foreclosure rates, would rather work out some sort of solution than take your home. Lenders are in the business of lending money, not selling houses, and the process of foreclosure is a tedious one that most...

Home Loans and Mortgages ? Tips to Avoid Foreclosure

Mortgages > Home Loans and Mortgages ? Tips to Avoid Foreclosure

Refinance & Mortgage Tips: Down Payment From Savings

Refinance & Mortgage Tips: Down Payment From Savings

by: Tristan Hunt

Once you?ve figured out how much of a down payment you can make on your home mortgage, it?s time to determine how to document the source of your funds for the down payment and closing costs. Now you might be saying, ?Why do they care where I get the money?? Lenders need to verify the source of funds to both assess the underlying risk in you as a borrower as well as to prevent loan fraud. This makes it imperative for you, the applicant, to maintain complete and detailed records of how the money which you plan to use for a down payment makes it into your hands. Money from your own savings, checking & money market accounts looks best to the bank for a variety of reasons, and is amongst the easiest sources of capital to document.

Money in the bank is also very easy to document. The lender has the option of asking you to submit bank statements to them indicating that you have the...

Refinance & Mortgage Tips: Down Payment From Savings

Mortgages > Refinance & Mortgage Tips: Down Payment From Savings

Home Loans and Mortgages ? One Third of Homes in U.S. Overvalued

by: Charlie Essmeier

A new study by National City Corp. looked at home values for 299 American cities and compared them to where they ?should be? based on a number of economic factors that determine home prices. The results were not encouraging; homes in nearly one third of America were judged to be ?extremely overvalued.? That?s the part that?s getting headlines. A complete read of the report shows that things are even worse, as 100 cities in the U.S. have values judged to be too high by 18% or more. What does this mean?

It will come as no surprise to most people that the areas judged to be the most overvalued are in California, Florida, and New York and Massachusetts. Home prices in these states have increased at a rate that far exceeds the increases in salaries in these areas. When homes are priced in a way that is disproportionate to income, they become unaffordable. The mortgage...

Home Loans and Mortgages ? One Third of Homes in U.S. Overvalued

Mortgages > Home Loans and Mortgages ? One Third of Homes in U.S. Overvalued

Subprime Mortgages ? Information

by: Dan Lewis

Undoubtedly, you?ve heard the radio commercial claiming you can get a mortgage despite having bad credit. Bad credit mortgages are better known as subprime mortgages.

Subprime

?Subprime? is a euphemism for a borrower who simply doesn?t qualify for a traditional home mortgage.
Subprime loans used to be very difficult to get, but things changed in the 1990?s. Banks began to realize there were a lot of borrowers with less than stellar credit or other problems. More borrowers meant more revenues, so banks started creating subprime mortgages and the game was on. As a result of these new loans, home ownership in the United States has risen to all time highs.

One of the biggest determinants in qualifying for a loan is your credit score. A borrower?s credit history is analyzed using a ?FICO? score, named after Fair Isaac and Company, Inc. Generally, a FICO score below 620 is considered...

Subprime Mortgages ? Information

Mortgages > Subprime Mortgages ? Information

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There has been a lot of flak with how USA has been flirting with health problems because of obesity. More and more people are getting drowned in the onslaught of fast food and junk foods. Remember the movie "Upsize Me"? It played a parody on how Americans are stuffing themselves silly with fatty foods. Over sixty percent of American citizens are considered obese or bordering into it. Many would like to deny this, but...

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