According to reports released by the Federal Bureau of Investigation, reverse mortgages have increased by over 1,300% between 2003 and 2013. Despite the growing popularity, many seniors are constantly warned of certain reverse mortgage pitfalls. Seniors are often told that using this financial product means giving up the title to their home, paying outrageous fees, or going through a complicated application process. With so much conflicting information, it can be difficult for consumers to determine whether a reverse mortgage might benefit them.
Common Reverse Mortgage Pitfalls to Consider
One of the most common misconceptions about reverse mortgages is that borrowers give up the title to their homes. Using this financial product does not mean that a borrower is giving up ownership to his or her home. Borrowers maintain ownership until the home is sold and their lender repaid. If a person has the means to repay their lender without selling the home, they may pass on the home to their children or heirs.
Many consumers think of certain fees as reverse mortgage pitfalls. Like any loan, there are costs associated with taking this financial product. Borrowers will be expected to pay an origination fee, closing costs, mortgage insurance premiums, and sometimes servicing fees. Borrowers will also be expected to pay interest on any amount they borrow.
What many people fail to realize is that these costs are typically rolled into the loan. Unless a person wants to pay certain fees upfront, they will not be expected to pay these fees prior to taking the loan. To eliminate any uncertainty, borrowers are urged to discuss a lender’s fee structure during the application process to avoid any possible pitfalls or misunderstandings.
Some people also worry that the application process might be too much work. To qualify for this type of loan, borrowers are expected to apply, have their home appraised, and attend a counseling session. The loan process does take a decent amount of effort on the borrower’s part. Fortunately, in many cases, the benefits are worth the effort.
It’s also worth noting that the requirements are similar to other loan types. If a person wants to refinance his or her home, an appraisal will be required. The main difference is that these mortgagees are also required to attend an approved counseling session. While this might sound intimidating, these sessions enlighten borrowers and help them understand the loan process. Counseling is required to protect consumers, not to complicate the loan process.
Are Reverse Mortgage Pitfalls Worth the Potential Benefits?
Many seniors certainly believe so. The funds received through this financial product are tax-free and can be extremely helpful to seniors with limited cash. Even after evaluating certain reverse mortgage pitfalls, many consumers choose to further pursue a loan.
This unique financial product can provide seniors with the funds necessary to pay large medical bills or simply increase their standard of living. It may even be used to pay off an existing mortgage loan and reduce a person’s monthly expenses. Regardless of the potential reverse mortgage pitfalls, there is no denying that these loans benefit many seniors.
By Robert Charlson