Reverse Mortgage Pitfalls

by Mike on July 6, 2010


Consider These Reverse Mortgage Pitfalls Before Signing Up For One

For cash strapped seniors who are finding it hard to stay on top of their bills a reverse mortgage may seem like a gift from heaven. By trading in some of the equity in their home they can enjoy their golden years in style rather than worrying about how they’re going to keep food on the table. But before you or a loved one jumps the gun and signs up, there are some disadvantages you should consider. You’ll want to do some research and carefully consider these reverse mortgage pitfalls before signing on the dotted line.

When you take out a reverse mortgage you are borrowing against the equity in your home. It probably took you decades of monthly mortgage payments to build up that equity and you might not want to give it away so easily. You may have planned on leaving the house to your children or grandchildren but if you borrow against it now your heirs may not be able to keep it when you die. At the very least they’ll have a lot less of an inheritance.

What if you take out a reverse mortgage now and then you run into financial trouble a few years down the road? You may have nowhere else to turn if you’ve already exhausted the reverse mortgage option.

A reverse mortgage doesn’t have to be paid back as long as you are living in the house. But what if your circumstances change and you decide you want to move? You may not have enough money to move after you’ve paid back the loan and you’ll be trapped in a home you no longer wish to live in.

Now that you’ve been warned of some potential reverse mortgage pitfalls, you should know that they do work out just fine for many seniors. The key is to do your homework before committing to anything.  You can start out by reading some reverse mortgage pros and cons.

{ 6 comments… read them below or add one }

Budgeting in the Fun Stuff July 7, 2010 at 7:06 pm

I hadn’t thought about the fact that a reverse mortgage would keep you tied down to the house…I would never want the option of moving taken away since you never know what issues may pop up in later years that would cause you to need or want to move. Thanks for the info!
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Everyday Tips July 7, 2010 at 10:59 pm

I actually initiated this process for my dying grandma. She passed before we signed on the dotted line, but it is a huge decision. I have wondered how badly the entire reverse mortgage industry has been burned with all the falling home prices. I am sure there are a lot of people that got a lump sum payment, and the house value dropped dramatically in the time between when the mortgage was taken out and when the person maybe passed away.
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Mike July 8, 2010 at 1:54 pm

I’m sorry about your grandmother. Falling home prices would hurt the homeowner because there would be less left after repaying the reverse mortgage.

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Evan July 8, 2010 at 12:00 am

Cool review of the Cons, but only one little piece about the pro?
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Mike July 8, 2010 at 1:56 pm

Hey Evan,

There are positives to reverse mortgages (mostly being able to stay in your home!) but I was focused more on the negatives with this post. Maybe I’ll write up a counter post. My mom has a reverse mortgage on her home from a few years ago before my dad passed away so I can write from experience.

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Mortageman July 14, 2010 at 9:12 pm

I would never want the option of moving taken away since you never know what issues may pop up in later years that would cause you to need or want to move

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