Reverse mortgage loan programs help in meeting the financial demands of an individual after retirement. The reverse mortgage loan program may be availed only by individuals owing a house. Also they should have sufficient equity in their house. Since the money availed from the reverse mortgage loan program may be used for various purposes, this may be treated as an income source. However, it is not referred as an income due to which it is not subjected to income tax. The other benefits include the repayment facility. One needs to repay the loan only after the house is sold, transferred or the occupants relocate to some other place.
Just as there are various advantages with a reverse mortgage loan program, reverse mortgage pitfalls cannot be ignored either. Some of the frequently encountered reverse mortgage pitfalls may be mentioned as under.
Heir take on the liability:
Over the years, the equity in the home gets reduced. The repayment of the reverse mortgage loan is not required to be paid till the time the applicants are alive but ones they die, the loan has to be repaid. Under these circumstances, the loan has to be repaid by the heir or the successors. Even if they want to retain the house, they may not be able to as the house has to be sold for repaying the loan.
More expensive than traditional mortgage loans:
The costs involved in a reverse mortgage loan program are usually more expensive than a forward mortgage loan program or a traditional mortgage loan. Prior to finalizing a loan deal, the rate of interest has to be carefully ascertained. However, the borrower may be rest assured that the repayment amount of the reverse mortgage loan at no point of time exceeds that of the loan amount.
Lenders 's equity in property:
The lender 's equity percentage in the property also needs to be ascertained prior to striking the deal. This may impact the borrower in the event the valuation of the property increases.
HUD approved counselors:
There have been several cases of fraudulence and one needs to be very careful because all lenders do not have the same intention. There are lenders who try to extract maximum cost from the borrowers by taking advantage of their age and helplessness.
Despite the drawbacks, it cannot be denied that reverse mortgage loan programs are beneficial mortgage loan plan vehicles.