You have been considering a reverse mortgage for some time but now you’re afraid. Some people might be telling you about the dangers of reverse mortgages. These dangers can become apparent once you decide to get a reverse mortgage. (If you missed the article that discussed the Reverse Mortgage Overview, you can read it here.) But do these dangers have any basis in fact or reality? Or these are simply dangers that you should not mind because the benefits are just too good to ignore?

First, let’s list four major benefits:

1. Benefit #1 – You get to own your home or estate for so long as you are living in it, maintaining it, and paying its insurance and property taxes.
2. Benefit #2 – You get to enjoy the monthly cash flow from the loan without taxes and you can spend it without restrictions.
3. Benefit #3 – You get the option to use it on the education of your grandchildren or on other large expenses like uninsured medical.
4. Benefit #4 – You are protected by the federal government because of certain strict regulations and safeguards placed on this financial mortgage program.

There are many other benefits that one can get by getting a reverse mortgage, but just like any financial loan, whether taxable or not, there are also some dangers which you should know before deciding to take the reverse mortgage so you have some facts and avoid regretting the decision later on.

Some reverse mortgages come with high-front end fees. These fees are why many lenders offer the reverse mortgages in the first place. The fees are what I call “fluff” fees and there is no real cost to provide what the fees cover other than normal course of business charges.

For example what if the mortgage lender said you had to pay for a portion of their telephone bill. And also a portion of their utilities. And a portion of the “free parking”. Etc. Etc. The fees being charged are all profit and for the most part can be eliminated and the lender will still make money. If the fees are not eliminated, they can be negotiated lower and some removed altogether. The lender makes their money on the loan interest. The fees that they charge are what pay the bonuses and for those trips to Vegas.

Many of these fees and costs are not realized at the early stage of your application process because just like other financial loans, many lenders avoid disclosing them when you are first discussing this product. So, before you sign anything, it is always a good idea to discuss the possible high charges to avoid the big burdens in the end.

Find out in advance what the charges are going to be. Get an itemized list of the fees and the cost of the loan. Have them sign a statement that there are no hidden charges that aren’t disclosed until closing day.

So what are these high-front end costs? They could include interests, origination fees, and points. Like I just said, lenders enjoy these fees and points because it is from these fees and charges where they make money for doing nothing.

For this reason, you should be watching out for these things and making sure bank discloses the details on your up front costs so you can avoid the regrets later. Also, check for possible high interest rate increases and/or higher closing costs later.

There might be mortgage insurance that is needed for the loan to go through. The bad thing about mortgage insurance is that you can be stuck with mortgage insurance charges because of homeowners insurance and possible repairs and some other payments.

Whether your home depreciates or appreciates, it doesn’t really differ as to how much you need to pay. So the mortgage insurance is something to watch out for when applying because no one wants someone else trying to get their money away from them.

Reverse mortgages can really look appealing to senior citizens who are 63 years old and above, due mostly on the fact that they give some sort of financial leveling up or a way for a better and more comfortable retirement life.

On other hand, reading about these dangers just discussed above can discourage many individuals; however, it does not also mean that other types of mortgages are safe to take. As a matter of fact, other mortgages come with pros and cons that are even riskier.

You need to choose the best option for you so that when it is all said and done, you don’t get into a situation that you can’t take care of later on.

For Taking Early Retirement (TER), I hope you are enjoying a great retirement or are close to that day!

Jeremiah John

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