Q: Are reverse mortgages a good idea? (3 disadvantages of reverse mortgages) Sandy, Chicago, Illinois
A: As with most financial decisions, the right answer to whether a reverse mortgage is a good idea or not depends on your individual circumstances and goals. Since there are so many commercials on TV singing the praises of reverse mortgages, in order to provide some balance, I’m going to give you 3 disadvantages of reverse mortgages:
1)High Fees: The upfront fees (closing, insurance and origination fees) for a Reverse Mortgage are fairly high–higher normally than the cost of refinancing a mortgage loan for example.
2) Even though you no longer have to make mortgage payments, you still have additional costs associated with your home—you must continue to pay for ongoing maintenance, property taxes and insurance for example. Furthermore, you may be subject to foreclosure if you live somewhere other than the home for a period longer than allowed by the loan agreement.
3) A reverse mortgage decreases your home equity which reduces the value of your estate, which may be an issue if you plan to leave your estate to heirs or charity.
Thanks for your question, Sandy—good luck. For more real estate tips and information, visit my blog at geraldlucas.com or performanceproperty.com. I’m Gerald Lucas and I’ll see you again soon.