What are the Disadvantages of a Reverse Mortgage?

The Downsides of Reverse Mortgages: What You Need to Know

While reverse mortgages can be a great option for many older homeowners, they still have their fair share of disadvantages. Even if you’re 100% set on getting a reverse mortgage, you should still know exactly what you’re getting yourself into. In this article, we’ve detailed some of the less rosy aspects of a reverse mortgages in order to make sure you’re fully prepared.

#1: Your Mortgage Balance Increases Over Time

When you take out a reverse mortgage, you’re actually borrowing against the equity you’ve accumulated in your home. So, instead of the loan balance decreasing (like with a traditional mortgage), your balance will actually increase over time, as the payments you receive (along with interest and fees) pile up. Despite that, this isn’t necessarily a true disadvantage of a reverse mortgage— it’s simply the nature of the product itself. However, keep in mind that if you want to sell your home or move away, you will have to pay back the entire balance of your reverse mortgage loan to the lender.

#2: Your Reverse Mortgage Will Become Due If You Fail To Meet Certain Loan Obligations

Unfortunately, you can’t just live in your house, do nothing, and collect your reverse mortgage payments until the money runs out. To keep your mortgage in place, you’ll need to stay financially responsible, keeping up with your property taxes, homeowner’s association fees, and insurance, as well as maintaining your property to a reasonable degree. If you fail to do any of these things, your lender can demand repayment of your reverse mortgage.

#3: Your Eligibility For Certain Government Programs May Be Affected

If you receive medicare, medicaid, or supplemental security income (SSI) benefits, or receive benefits from other government programs that are income-based, the additional income you get from a reverse mortgage could affect your eligibility. If you currently are involved in any of these programs, you should be sure to look into the details first, since losing benefits from these programs could seriously impact your finances.

#4: Reverse Mortgages Reduce The Value of Your Home For Your Heirs

If leaving a sizable inheritance to your heirs is a priority, a reverse mortgage may not be a great idea. However, that depends on your individual situation. While your heirs will have to pay off your home or refinance it if they want to keep it, the income from a reverse mortgage may help you avoid dipping into other investments, which you could then pass on to your heirs.


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