Reverse mortgages are a lifesaver when it comes to property loans. It is one of the few options that are at your disposal after retirement. However, it is not a perfect system of financial arrangement. Let us discuss some cons of a reverse mortgage.
You cannot move to a new place
Once your reverse mortgage is sanctioned, you are required to stay in the same house for which you have taken the loan. You cannot leave the house and move to a new place. Your mortgage would be canceled if you were to do that. In fact, this is one of the first conditions you need to fulfill.
Age restrictions
One of the least popular things about a reverse mortgage is that it is limited to a certain age group. According to the eligibility criteria, only those above the age of 62 years can apply for a reverse mortgage. This also means that they should be in their retirement phase in order to be eligible for a reverse mortgage. This serves as a sore disadvantage to those who are in need of a loan but are under 62 years of age.
Paying property tax is mandatory
Since a reverse mortgage is a taxable income, you have to pay property tax along with the mortgage premium. There is no escaping this payment. This is a limitation because you have fewer sources of income after you retire and paying a loan plus additional amount of taxes can be quite demanding.
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Application for the loan will cost you a fortune
Although the interest rates are as low as 2% for every $100,000, other costs are high. For example, the application fee alone is very expensive. Therefore, you have to be extremely sure about your decision. You do not want to pay a fortune simply for the application before you even start repaying the loan.
Ownership cannot be obtained without the total repayment of the loan
The best part about borrowing from banks is that you do not have to worry about spoiling close relations or be threatened about high-interest rates. There is a formal contract, which is agreed upon by both the parties that are involved. Moreover, even if you are paying off the loan, you can still call the property yours during that time period. The case is different with reserve mortgages. You cannot have complete ownership of the property unless you clear the entire loan amount.
You are not eligible for other loans
The thing with traditional loans is that you can borrow them and also apply to other banks for other loans. This means if you have an ongoing home loan, you can apply for a car loan or a personal loan, as well. However, there is a severe restriction to reverse mortgages. Any person who has borrowed a reverse mortgage from a bank is not allowed to borrow any other type of loan from any bank. Doing this may result in a complete withdrawal of the reverse mortgage.
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