Reverse Mortgage Pitfalls - Don't Fall Into One of These Pitfalls

Reverse mortgages can be a good idea for many seniors but you have to be wary of some of the reverse mortgage pitfalls. Reverse mortgages are a way to get tax-free money that you can spend any way you want. You don't repay this money until you no longer live in your house and it is sold. After the sale you pay the lender back the amount borrowed plus the costs of the loan, which include interest. What's left over goes to you or your estate.

The amount of money you receive for reverse mortgage depends on your age, your home value, the interest and other costs associated with the loan, and if you owe anything else on home. Basically the older you are and the more your home is worth, the more money you can receive. You can receive the money three different ways, as a lump sum, fixed monthly payments, or a line of credit that you can access whenever you wish.

These mortgages are not for everyone and there are some reverse mortgage pitfalls and you should be wary of. When calculating the amount of money that you will receive remember that there are several different costs that go into the loan will be deducted from either the total amount or the monthly payment. As in a traditional mortgage you have to account for interest and the escrow amount that will take care of taxes and such. In reverse mortgages that money is taken out of the payments that you receive. You might think you're getting $700 per month but actually after all costs are calculated you're only receiving $500 per month.

Another reverse mortgage pitfall that many people fall into is the problem with the term 'primary residence'. Many seniors may own two homes, one home in a warmer climate that they go to for several months in the year. In this case your initial home may no longer be considered your primary residence. Also if the remaining homeowner goes into an assisted living home or some other type of care facility the mortgage company will no longer consider your home as a primary residence. In both of these cases, the loan amount must be repaid back with additional fees.