Top 5 Reverse Mortgage Mistakes in UAE

A reverse mortgage is a special kind of loan product that can help you handle your everyday expenses after retirement, especially if you don’t have sufficient funds to support yourself. This loan is taken out against a property already owned by the borrower and is only payable after their death or if they move out of the ‘collateral’ home. While certainly an appealing idea, getting a reverse mortgage may often be accompanied by several seemingly small but shattering errors.

This article will help you understand the mistakes you need to avoid when taking on a reverse mortgage loan to make it easier for yourself as well as your dependents and children.

Let’s have a look at the 5 most common mistakes to avoid when taking out a reverse mortgage loan. 

1. Drawing More Equity than You Need

The maximum equity that you get will be based on the current value of your home. However, even if you are able to get exceptionally higher equity due to the high value of your home, you should only take out the required amount at the moment. 

This is due to the fact that the equity that you receive from the bank as the loan amount will have to be repaid with interest. On top of that, the additional fees and charges applicable to reverse mortgages are usually much higher than the charges applicable for other types of loans. This is because reverse most costs are not payable upfront. 

The charges get added to the loan amount in a reverse mortgage, meaning that you pay interest not only on the loan amount but additional reverse mortgage costs as well. For this reason, it is always recommended to take out the loan amount that you need to cover your current monthly expenses. 

Keep in mind that even if you can have the option to never pay back the loan amount, your heirs or spouse will be responsible to cover it if they wish to retain the collateral property. Thus, plan the equity acquisition after carefully considering all mentioned factors. 

2. Not Up Keeping the Property

Failing to maintain the collateral property may lead to the directive of immediate repayment of the loan amount in full by the loan provider. Other than that, lenders generally require the borrower to take out a homeowner’s insurance as well. 

As a borrower, you must keep up the insurance payments as well as maintain the current value of the house with proper upkeep. A de-valued property here means a loss for the lender and becomes one of the reasons why loan repayment is triggered. However, if the devaluation of the property is a result of the market or similar factors beyond your control, no such repercussions may be there. 

3. Not Considering the Needs of Your Spouse

Don’t forget to consider the needs of your spouse if you are living with them in the house that has been used as collateral for the loan. The lender may divide spouses into two categories – eligible and non-eligible. 

Eligible spouses can remain on the property even after the borrower passes away. However, your non-eligible spouse must be added as a co-borrower on the reverse mortgage loan if they are permanent residents of the collateral house and don’t have a secondary residence to move to. In such instances, not adding your non-eligible spouse to the loan can lead to grave consequences. 

If you are the sole borrower for your mortgage and have to move out to a nursing home permanently to get regular care, the lender will have the right to recover the loan in full immediately. Your non-eligible spouse will either have to repay the loan in full or move out of the property so that the bank can sell it off to recover the loan. The only way your non-eligible spouse can stay on the property is if they are listed as a co-borrower on the loan. 

An alternative to taking care of the well-being of your spouse can be life insurance. If your spouse has been named a beneficiary of your life insurance plan and the death benefit is sufficient to take off their finances, a reverse mortgage loan may not be required for them. Whatever the case be, it is advised to consider every possible outcome and option to take necessary steps in advance.  

4. Not Keeping Heirs in Loop

If you plan to leave your home to your children, keeping them informed about this plan becomes essential. The lender has the first right to the property put as collateral for a reverse mortgage. The heirs of the borrower may be taken aback by surprise if they learn about the reverse mortgage set up after their parent’s demise.

The ideal thing to do here is to talk to your children before getting a reverse mortgage and see if they would like to offer you an alternative. If you have already taken out the mortgage, inform your heirs about the details of the mortgage plan and the associated conditions. This way, they can prepare a contingency strategy in advance to pay off the loan if they wish to inherit the property. 

Another thing you can do here is to mark down a few assets that can be used to pay down the loan amount of the reverse mortgage so that your primary residence can be inherited by the heirs. You may also mark the proceedings from your life insurance plan as the means to pay off the reverse mortgage. With many such options available, it all boils down to what works best for you and your family.

5. Not Comparing Your Options

While a reverse mortgage is not as popular as other loan types like conventional home loans, auto loans, and more, you can still find numerous lenders offering this particular option. Comparing different options will allow you to get a fair idea of the maximum equity you can get for your property.

Extensively comparing the options can also help you determine the best available option in terms of applicable fees and reverse mortgage interest rates. Additionally, you must read customer reviews (if available) or get advice from the experts. 

Lenders generally have reverse mortgage loan counsellors to help potential customers understand the terms and conditions associated with the product. Thus, you should consider getting counselling as well. 

Key Points to Remember

• Reverse mortgage products are ideal to use your home’s equity and get a steady flow of income in the form of a loan. However, a few things must be kept in mind while taking out and managing a reverse mortgage. 
• Only draw the equity that you require to manage your expenses. With loan fees and charges along with interest amounts, the total repayable sum increases considerably from the initial amount that you receive with the mortgage. 
• Properly maintain the house that you put down as collateral for the loan. It is crucial to maintain the value of the house. 
• Let your heirs know about your ongoing reverse mortgage and help them understand the conditions in advance. If you are still planning to take on the mortgage, including them in the decision-making process may deem well for all. 
• Borrowers must make sure that they have made the required arrangements for their spouse (if they are married) so that they are not out of options after their demise.
• Always compare your options, conduct thorough research, and get counselling or expert advice to make an informed decision regarding your reverse mortgage.