RealtyPin.com's 4 Reasons NOT to Get a Reverse Mortgage
LOS ANGELES, March 6, 2013 /PRNewswire-iReach/ -- If you search for a mortgage on Realtypin.com, you won't find any options for reverse mortgages – and that may be a good thing! While reverse mortgages can help some people, they're not a good option for everyone. In fact, there are 4 reasons NOT to get a reverse mortgage:
1. Sequestration has left their future up in the air
Because the FHA insures reverse mortgages, their availability will depend on what lawmakers decide in Washington. The FHA is already operating in the red, and if the major sequestration cuts go through, it could affect the FHA's ability to insure loans. Even if reverse mortgages are still available, they could become considerably more expensive. So, before you pin your hopes on one, find out exactly how the political debate in Washington will affect your wallet!
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2. They're expensive
Even without the FHA's financial troubles, reverse mortgages are expensive. They come with compounding interest – which means that the loan amount gets bigger each month. If you're not diligent about making each and every payment in full, you could wind up with very little equity – or even no equity – in your home!
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3. They've become a haven for scam artists
Reverse mortgages were originally designed to give older homeowners some help with their finances, by using the equity they had already built up in their homes. However, some people have decided to take advantage of older homeowners who may not be financially-savvy – by creating reverse mortgage scams. They prey on these homeowners and pressure them into signing on the dotted line, without getting any of their questions answered. In order to combat these scam artists, it has become a requirement that homeowners have to talk to a mortgage counselor before they can legally sign any reverse mortgage documents. In some states, there are even "grace periods" where homeowners can back out of the deal without any penalty. Still, though, some homeowners fall victim to smooth-talking scammers.
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4. They're confusing
One of the main reasons why people get scammed is because they don't know exactly how reverse mortgages work in the first place! Unlike "traditional" mortgages – where just about every homeowner or wannabe homeowner understands how the process works – reverse mortgages can be tricky. After all, each reverse mortgage works a little differently, because it depends on how much equity has been built up in the home. And, because there are no monthly payments as long as the homeowner lives in the home, people can get confused as to how much they actually owe – and when.