A Closer Look at the Long-Term Reverse Mortgage Disadvantages

A reverse mortgage is a special type of loan that lets seniors borrow a portion of their home equity and defer payment until they pass away or move from their home. To qualify for a reverse mortgage, borrowers must be at least 62 years of age and have a small remaining mortgage balance. Qualified borrowers will be eligible to receive their proceeds as one lump sum, a line of credit or in monthly payments. Reverse mortgage proceeds are tax-free and will not affect a person’s Medicare or Social Security benefits. Three Long-Term Reverse Mortgage Disadvantages Seniors Need to Consider To many seniors, getting a reverse mortgage seems like a fool-proof way to fund their retirement. While these loans certainly offer many benefits, there are a few long-term reverse mortgage disadvantages that seniors should be aware of. One of the most commonly discussed reverse mortgage disadvantages is the fact that these loans deplete a great deal, if not all, of the borrower’s home equity. A person’s home equity is a very valuable asset. Many seniors use their equity to fund long-term care later in life or simply pass that equity onto their heirs. Tapping into one’s equity too soon can cause problems in the future. To avoid future financial problems, seniors should carefully consider whether now is the right time to get a reverse mortgage. A reverse mortgage can also tie a senior to his or her home. After getting a reverse mortgage, most lenders recommend that borrowers remain in their home for at least five to seven years. Since seniors will pay interest and other fees on any amount they borrow, reverse mortgages should typically be regarded as long-term loans. While considering reverse mortgage disadvantages, it is also important for seniors to understand that getting a loan will impact the value of their future estate. Once both borrowers pass away, a reverse mortgage will become due and payable. In this situation, a borrower’s heirs will be responsible for handling the repayment of the loan. Heirs may decide to sell the home, refinance the loan or repay the loan from their own assets. If the home must be sold, a borrower’s heirs will inherit any equity that remains after repaying the loan. Still, seniors who were hoping to leave their children a large inheritance will want to consider what a reverse mortgage will do to their estate. rnDo the Reverse Mortgage Disadvantages Outweigh the Benefits? While there are several reverse mortgage disadvantages to consider, these loans offer seniors many important benefits. For many seniors, their retirement income is not enough to comfortably cover all of their expenses. Getting a reverse mortgage will eliminate borrowers’ mortgage payments and, in many cases, will also provide them with additional cash. Seniors can use this cash to add to their savings, pay off high-interest debts or afford important medical care. Since borrowers get to defer payment until they move, die or sell their home, getting a reverse mortgage will not add another bill to an already stressful financial situation. This is what draws many seniors to reverse mortgages, regardless of the possible reverse mortgage disadvantages.