What Is the Downside of a Reverse Mortgage?
Reverse mortgage downsides
Depending on your personal circumstances, there may be some downsides to a reverse mortgage. It's important to fully understand the terms of your reverse mortgage loan before closing, so here are the drawbacks of this type of home loan:
- Upfront costs and interests rates are typically higher for reverse mortgages and the borrower has to pay interest on insurance premiums, closing costs, and service or brokers fees if they are rolled over into the loan. Reverse mortgages have variable rates which means they change lower or higher depending on the market conditions.
- The remaining balance on your mortgage must be paid through your own money or the payments received through the reverse mortgage upon closing.
- Your home equity will decrease with each payment; there may not enough remaining for your estate or for future needs.
- More often than not, the home must be sold in order to repay the loan. If you plan on leaving the home to your heirs, they would have to pay the loan in full.
- The borrower is still responsible for the upkeep of the home, paying property taxes, and paying insurance otherwise the loan becomes due.
- The proceedings received from a reverse mortgage can affect your SSI (Supplemental Security Income) and Medicaid.