A reverse mortgage is far from a one size fits all solution for every senior homeowner. While it is a wonderful tool that can be used by many to provide lifelong security and greatly extend their years of independence, it is not appropriate in every scenario. Listed here are some of the cons or potential negatives of reverse mortgages. These items can be reviewed during the required session with a HUD approved counselor to ensure they are understood and accounted for in the financial planning phase of the reverse mortgage process.
Heirs may not be able to repay the mortgage without selling the home.
An aging parent may hope to take out a reverse mortgage but still have the family home remain in their children’s possession after they pass away or can no longer live in the home. In some cases this will be possible, but in others the heirs may need to sell the property in order to repay the mortgage.
There is no guarantee that the senior can stay in the home for the rest of his or her life.
The goal of a reverse mortgage is to allow aging homeowners to tap into the equity in the property and use those funds for other purposes, while still remaining in the home. This is a great alternative for many over selling the home in order to access that equity. Still, there are scenarios where it might not be possible for the homeowner to remain in the property. Some of these include:
- Due to illness, injury, or other factors the homeowner can no longer safely live independently and must move in with a family member or to a nursing home or assisted living facility.
- A line of credit (one of the payment options) is selected, and the homeowner exhausts these funds and can no longer afford to remain in the home.
- Term payments (one of the payment options) are selected, and at the end of the term (fixed period of months over which equal monthly payments are received) the homeowner can no longer afford to live in the home.
- Changes in expenses or other income result in the homeowner no longer being able to afford to stay in the home.