Just like you would expect, every financial product or service presents a potentially negative side that should to be analyzed carefully ahead of time in order to determine whether the advantages provided by that particular service outweigh all the possible shortcomings. Reverse mortgages are exactly the same and although they can be a secure approach for older individuals to gather a hefty sum of money easily, there are some negative aspects that should be taken into consideration.

A reverse mortgage is nothing more than a loan contracted using real estate, an individual’s home, as collateral. Seniors are awarded a sum of cash from the equity in their home and are not required to make monthly repayments on the money borrowed. The negative side of things can be a little more complicated, reason explaining why under US law it is mandatory for borrowers to pursue financial counseling with the aid of a specialist to clarify all details pertaining to reverse mortgages.

The negative aspects associated with this type of mortgage are plentiful and potentially devastating if the procedure is not planned with extreme caution. One of the most important characteristic anyone potentially interested in acquiring a reverse mortgage should know is that this procedure dictates that the ownership of the home be signed to the lender. The consequences of this arrangement ought to be pretty obvious. Another important facet that should be mentioned is that the funds borrowed don’t have to be pay off on a monthly basis which might sound like a blessing at first. Repayments are only due when the home owner dies, sells the property or leaves the home, but until that point interest will accumulate on the outstanding loan. As the years go by, the home owner will be paying interest on the interest and so forth. Recent studies have provided important evidence indicating that many individuals who opted for reverse mortgages ended up spending the money uncontrollably, creating a severe problem which in most cases can only be solved by selling the home.

An ever increasing number of people are being tricked into borrowing larger sums of money for more than they need while some of the contracts also contain hidden clauses that could set in motion prompt financial sanctions to lenders. In short, many consumer groups have started to shed light in the topic by warning unsuspecting clients of the risks involved with reverse mortgages.

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