What are the downfalls of a reverse mortgage?

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What are the downfalls of a reverse mortgage?

A reverse mortgage is an attractive option for seniors looking to tap into the equity of their homes for additional income during retirement and to pay off their existing mortgage. While there are many benefits, there are some downfalls that you should consider before committing to one.


Firstly, the costs associated with a reverse mortgage are higher than a regular home loan. These costs include origination fees, mortgage insurance premiums, and closing costs, which can all add up.  The great news is on a refinance they’re included in the loan so there’s no out-of-pocket expenses other than an appraisal.   The benefit to paying the mortgage insurance, which is the biggest cost, is that it protects you and your heirs from worrying about your home being worth less than the loan balance.  In very rare cases if your home ever was worth less than the loan; after you pass, your heirs can give the house back to the bank and they can’t go after any of your other assets.  It’s well worth the cost.


Secondly, the complexity and terms of reverse mortgages can be confusing and difficult to fully understand. That’s why before you can apply for a reverse home loan, you’re required to go through a special counseling session to make sure you understand all the aspects of the loan.  It’s also why it’s critical to work with a reverse mortgage expert who’ll go over all your options and knows what they’re doing.  You definitely don’t want to work with a call center/online lender or anyone who doesn’t specialize in reverse home loans.


Another significant downfall is the risk of foreclosure. This is actually a myth.  With a reverse home loan, you aren’t required to make a monthly mortgage payment.  You’re responsible for paying your homeowners insurance and property taxes.  Guess what?  If you didn’t have a mortgage on your home and didn’t pay your property taxes; the local government would foreclosure on your home, so the risk is no different with or without a reverse home loan.

Public benefit impact

Lastly, a reverse mortgage could impact eligibility for certain public benefits. For example, the proceeds from a reverse mortgage might affect Medicaid eligibility because the income generated could be considered in means-tested benefit calculations. This doesn’t apply to social security.  If you’re getting any type of income based public payments then check with that organization or better yet your attorney to make sure it won’t negatively affect you.

In Closing

Reverse mortgages can provide much-needed funds for retirees and relieve the financial stress so many seniors face due to rising costs.  While a reverse mortgage may not be for everyone, it’s an amazing financial tool that has benefitted millions of seniors and allowed them to live a comfortable and happy retirement in their home.

If you’re ready to find out if a reverse mortgage is right for you visit us at https://reganteam.com/reverse-mortgage/ or call 707-508-8473.