Disadvantages of reverse mortgages

Before going ahead, it is important that people are fully aware of the disadvantages of reverse mortgages. They are complicated, legal, binding agreements that can be confusing for almost anyone, particularly if you are older. The major disadvantages of reverse mortgages are that they are extremely costly when compared to traditional loans. Interest is added to the loan principal balance every month so interest owing compounds rapidly.

Other disadvantages of reverse mortgages include the equity in the home or property can be completely consumed if the individual lives long enough. Basically that means once the home or property is sold, all proceeds go towards paying back the mortgage leaving nothing to the heirs. Another disadvantage is that interest is not tax deductible with this type of mortgage as it is with a traditional mortgage.

Reverse mortgages disadvantages also include the hefty fees charged by the lenders that can be front or back end loaded or both for that matter. These charges are defined by the lending institution and can be extremely costly to the person taking out the mortgage. Contract terms and conditions are also quite complicated so be sure to speak to a lawyer before signing anything.