The Downsides Of Reverse Mortgages

Perceptions change from one person to the next. Also, many of the downsides of reverse mortgages also apply to regular mortgages.

As an example, if you refinanced your home, and then sold it 2 years later, after paying all the closing costs, you may not have had enough time to recoup those costs. This goes for reverse mortgages as well.

Reverse mortgages should not be a short-term financial solution. A good rule of thumb would be that you intend to live in your home at least 5 years from the date you close. This should give you enough time to recoup the closing costs and take advantage of the benefits.

Anther downside could be that your heirs will not receive as much inheritance as they or you would like. If you have no heirs, then it will not be a problem. But if you do, how much would you want them to receive after you die vs the quality-of-life improvements a reverse mortgage can give you?

This is something to give serious thought. Closing costs on some reverse mortgages can be higher than on traditional mortgages because of the mortgage insurance required by FHA. But when compared to a regular FHA loan, there’s not much difference. And unlike a regular FHA loan, reverse mortgages are NON-RECOURSE. This means if you sell the house for less than what’s owed, the bank goes to FHA for the shortage, not you or your heirs. So, weigh the pros and cons of reverse mortgages based on your personal needs. Only you can decide what the downsides are.