What are reverse mortgage disadvantages?

There are advantages and disadvantages of reverse mortgages. It is easy to talk about the reverse mortgage’s many benefits – ease of eligibility, no monthly payments, supplemental income enabling a greater quality of life. In many ways, reverse mortgages are only ever presented as win-win situations. Let’s get real about the reverse mortgage disadvantages.

Potential disadvantages of a reverse mortgage

  • Reverse mortgage proceeds could impact your eligibility for Medicaid.
  • Despite its relatively easy requirements, one disadvantage of a reverse mortgage is that borrowers must be at least 62 years old to qualify; there is not much ‘wiggle’ room on this. (Although, borrowers may now have a non-borrowing spouse younger than 62.)
  • Origination fees and other closing costs can be significant. These are often rolled into (paid for by) the loan.
  • Lenders require that homeowners undergo certified loan counseling prior to loan application.
  • Lenders may charge servicing fees during the mortgage term.
  • Debt increases over time as interest is charged to the outstanding balance of the loan. (In an HECM mortgage, debt can never exceed your home’s value.)
  • Variable or adjustable interest rates are tied to short-term indexes, which can fluctuate.
  • As home equity is used up, fewer assets are available to the borrower’s heirs.
  • If you should need to permanently move out of the home, the reverse mortgage would soon become due.

The reverse mortgage disadvantages can seem daunting, but for many families a reverse mortgage is a much-needed or longed-for solution. Whether you’re looking to resolve medical debt, pay for needed home repairs or simply supplement your retirement income, the advantages may far outweigh the disadvantages.

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