As with other kinds of mortgages, there're a few disadvantages of a reverse mortgage that you need to be conscious of. Several of these pitfalls have to do with the particular reverse mortgage you may be applying for. However, it's a good idea to become familiar with a few of the disadvantages of a reverse mortgage.

By Igor Buces

There's a handful of things to know about reverse mortgages before choosing to get one. In the remaining of the article, we'll explain the main disadvantages of a reverse mortgage.

First, most reverse mortgages come with flexible rates. The rates will change as the market indicators change. This can be a disadvantage because of the uncertainty on future rates. Nevertheless, it can likewise work as an advantage if the interest rates go down once you get your reverse home mortgage.

In addition, the fact that interest rates may go up is not as vital as in a typical mortgage because you are not making monthly payments. Interest rates increasing just mean that you may not be able to get as much of a monthly payment or that the equity in the house may decrease quicker than you imagined.

Since reverse mortgages work by decreasing the equity in a house, you can end up using most of the equity of the home, leaving little money remaining for your heirs and yourself. Still, you need to remember that a "non-recourse" clause existing in most reverse mortgages prevents either you or your heirs from owing more money than your property is worth at the time of sale.

Furthermore, since you're retaining ownership of your house, you're responsible for the main costs associated with maintaining a house: real estate taxes, utilities, insurance and maintenance.

One of the important disadvantages of a reverse mortgage is that many banks charge inception fees and other closing costs for a reverse home mortgage. Banks may also charge servicing fees during the duration of the reverse home mortgage. Nonetheless, these costs are previously included in the home mortgage and don't represent an out-of-pocket cost to you.

In addition, the interest rate on a reverse home mortgage is not deductible in your income tax return until the mortgage is paid off (in part or whole.) Still, if you don't need that money right now, it can be a large amount of cash available to you at the time when you sell your house.

Finally, there's usually a cheaper answer to your financial concerns (refinancing, credit line, etc.) than obtaining a reverse mortgage. Of course, for some people, the benefits evidently surpass the disadvantages of a reverse mortgage.

Several of the benefits are the chance of remaining in your own home, maintaining proprietorship of it and not having to make any monthly payments while you live in it.

To ensure you get the best transaction, get a reverse home mortgage using a certified FHA reverse mortgage broker. A good reverse mortgage broker can educate you while saving you hundreds of dollars and reducing the disadvantages of a reverse mortgage.

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