You’ve probably come across ads with celebrities talking about the benefits of a reverse mortgage. If you’re approaching retirement, these advertisements might catch your eye, but it’s essential to be careful when choosing your mortgage.
A reverse mortgage can be tempting because it promises to let homeowners over 62 tap into their home equity without having to rent or sell their house. Unlike regular mortgages, with a reverse mortgage, the bank or lender pays you every month.
But remember, it’s still a loan. You still have to pay it back eventually, even if you keep living in the house. It might look like an easy way to get extra income, but it’s important to understand what you’re getting into.
Before you decide on a reverse mortgage, here are seven reasons why it might not be the best idea:
1. **Future Care Needs**: As we get older, we might need more help. A reverse mortgage is fine as long as you’re living in your home, but if you need to move to assisted living or a nursing home, you’ll have to repay the loan. This could be a huge financial burden and might even lead to losing your home.
2. **High Costs**: Reverse mortgages can be very expensive. Fees can add up to over 10% of your loan amount. These extra costs can cancel out the benefits you’re hoping to get from the mortgage.
3. **Accruing Interest**: It might seem like you’re not paying any interest at first, but interest does add up over time. The lender will charge interest on the amount you owe, which grows every year. If you don’t pay back the loan, your debt will keep increasing.
4. **Impact on Benefits**: While Social Security and Medicare aren’t affected, enrolling in Medicaid could be jeopardized if the income from your reverse mortgage exceeds allowed limits. It’s crucial to check how it might impact your benefits before going ahead.
5. **Reduced Inheritance for Heirs**: If you want to leave your home or its equity to your kids or relatives, a reverse mortgage can complicate things. It reduces the equity in your home and adds to your debt, which could end up diminishing the inheritance you leave behind.
6. **Living Situation Issues**: If you live with someone who doesn’t qualify for the reverse mortgage, it could affect their situation if something happens to you. They might find themselves facing serious difficulties.
7. **Risk of Losing Your Home**: While lenders advertise that a reverse mortgage promises you can live in your home for life, managing property taxes, home insurance, and repair costs can become difficult, even with extra income. You could end up struggling to keep up with these payments and potentially lose your home.
Reverse mortgages might look appealing in ads, but there are significant risks involved. Think carefully about whether the benefits truly outweigh the possible downsides. If the risks seem too high, you might need to find other ways to adjust your lifestyle.
Have you met anyone who took out a reverse mortgage? Did it make their situation better or worse?