I can almost hear it now…
“This is an article written by a guy who does reverse mortgages, there probably won’t be any cons!”

As passionate as we are about the reverse mortgage program, there are some drawbacks in some instances and we make certain that we point out the pro’s and con’s to all reverse mortgage applicants. As great as this product is, it is not right for everyone and it is always the best idea to know your goals and to have the help and support of your family and a trusted financial advisor.

Reverse Mortgage Cons

cons of the reverse mortgage

In this case, let’s start with the con’s. Reverse mortgages can be expensive loans. In the past, borrowers almost always had to pay not only an origination fee but also the Up-Front Mortgage Insurance, and those initial costs can be staggering to some.

Also, there are many ways to take your funds with a reverse mortgage and since the loan balance grows over time, the fees are based on the principal lending limit or the property appraised value, whichever is less. However, one of the good things is that with the recent HUD changes to the program, if you are not taking 60% or more of your total Principal Limit at the initial closing or in the first 12 months, the Initial Mortgage Insurance Premium (IMIP) cost as come down considerably.

If however, you are paying off an existing loan or have other liens that you must pay off (HUD now calls this your “mandatory obligations) that will make your starting loan balance 60% or more of the total Principal Limit or benefit amount available to you for your age, property value, etc., then your IMIP can still be a substantial sum.

Homeowners do not have to pay this money out of pocket up front, but it is added to the loan balance and so if the borrower is not looking for a long term solution, a reverse mortgage is probably the last loan that should be considered when the costs are higher.

Another possible negative of a reverse mortgage is for seniors who are not paying off a current mortgage but take enough of their funds up front for various purposes that might affect other eligibility that they currently receive.

Older Americans need to concern themselves with eligibility requirements for some need-based programs such as Medicaid and what the effect of having additional money in their accounts would have on their eligibility.

Unlike the old program parameters that would allow borrowers to take a lump sum of all funds up to the full benefit amount or Principal Limit at closing even if there were no liens to pay off, the new program limits the amount that borrowers can take at closing or in the first 12 months based on their mandatory obligations.

However, borrowers still need to be judicious about not taking too much money as the interest on their loan accrues faster than interest will accrue in a bank account at the low rates that borrowers earn on savings.

Something also to watch is that there are always unscrupulous folks looking for a way to separate seniors from their money. Whether it be with a bad investment (and bad can be defined as risky or one that cannot be accessed for long periods of time without penalty which the senior borrower may not have) or just someone looking to steal from the senior, having a lot of cash is a tempting target and many seniors are too trusting.

Too often we see that borrowers have been convinced that a “sure fire” investment in a family members’ business turned out to be  a lot less sure fire than they thought and it was not the loan’s fault that the money was lost, but the horror stories still refer to the borrower who lost all their money after taking out a reverse mortgage.

HUD eliminated the temptation to remove a younger spouse from title in August of 2014 to obtain more money on a reverse mortgage when they implemented guidelines that now require the age of a younger spouse to always be considered when granting a reverse mortgage.

Previously, if the older spouse was the only one on the loan and then had to leave the property due to moving to a care facility or passing, then the loan would be called due and payable and the younger spouse often had to leave the property at a very difficult time in their life.

Now younger spouses who are not 62 have a deferral period for as long as they live in the home even after the passing of the older spouse and as such are protected (but the original amounts that these borrowers receive on the loans are also lower taking into consideration the ages of the younger spouses).

One thing that borrowers need to be aware of is that the borrower is still responsible for the payment of the taxes, insurance and for the upkeep of the home. If the reverse mortgage will only pay off an existing lien, but the borrowers’ means will not maintain the property and the borrowers’ necessary lifestyle, the reverse mortgage is not a good long-term solution.

No one wants to think about selling their home and downsizing when they love their current home, but if you realistically will not be able to pay for all your needs, keep your taxes, insurance and maintenance on the home current and still put some money away for later, then a reverse mortgage that only pays off the loan on your current home is probably not the answer.

There comes a time when you have to ask yourself if you are just delaying an inevitable time when you will not be able to pay taxes or other expenses and it that is so, then there may be other options with a purchase reverse mortgage that I will discuss later and the time to consider them is before you have no alternatives.

pros of the reverse mortgage

Reverse Mortgage Pros

A reverse mortgage allows senior borrowers to live for the rest of their lives in a home with no monthly mortgage payments (keep in mind the debt is repaid when you leave the home). The home can be financed or owned free and clear and the borrowers can still obtain a reverse mortgage.

Unlike conventional forward mortgages, borrowers do not have to make monthly payments so they do not have to qualify like forward mortgage borrowers.

Borrowers always own their home and borrowers or their heirs dispose of their property just the same with a reverse mortgage as they would with any other home loan. Reverse mortgage proceeds are tax free, and borrowers can use the money for any purpose they choose. Borrowers can modernize or alter their home for comfort. They can pay for needed medical expenses, travel or other recreation; they can use the money for grand children’s college. It’s your home, your money and your choice!

The loans are government insured and therefore homeowners are guaranteed to always have the funds available to them, and if the lender does not pay funds to the homeowners in a timely manner, the bank owes the homeowners a late charge!

HUD guarantees that as long as you have funds left in your line of credit, you will always have them available. That is very comforting when banks have frozen lines of credit, eliminating the ability for borrowers to draw on them just when they needed to or have eliminated the loan entirely on normal Home Equity Lines of Credit.

And finally, no matter how long you live in your home, and no matter how much money you take from it in payments or what the real estate values do, you and your heirs can never owe more than the property is worth and your heirs can choose to pay the loan off at 95% of the current value if that is less than the amount owed if they wish to keep the home. Many homeowners today are still upside down on values, although thankfully the recent increases in value have started to eliminate that problem.

Regardless of what happens to values in the future, this can never happen with the HUD Home Equity Conversion Mortgage…otherwise known as the government reverse mortgage even if values drop again.

Finally, you can use a reverse mortgage to purchase a home as well as refinance the home you are in.  This has proved an invaluable option for borrowers for a few reasons.  Whether you need to move to lower your costs of living (as we discussed above), you need to find a home that better suits your needs later in life (single story, smaller, nearer to family or needed services, etc) or you just want to move because you no longer find that your current house best suits your lifestyle, the ability to use a reverse mortgage to purchase your next home is a fantastic took for borrowers over the age of 62.

This demographic of home buyer typically had to pay cash for a new home in the past because income may not support house payments and traditional loans may not be available.  Borrowers who did not have the ability to pay cash, or did not want to use all the money they had coming from the sale of their existing home just to purchase the next home can now buy their new home using about half of the purchase price as the down payment and also never having to make a mortgage payment.  This works extremely well for people who want to buy a home, those who need to get a home that will better suit their needs and those who need to lower their expenses as well.

We have seen reverse mortgages do some great things for some people who really wanted and needed them, but only you in conjunction with your trusted financial advisor and family can tell if this is the right loan for you.  Between the refinance and the purchase options, borrowers age 62 and over have more choices than ever before so maybe a reverse mortgage is worth a second look for your circumstances.

“Reverse Mortgage Pros and Cons” by www.reverse.mortgage

The experts at All Reverse Mortgage® are here to answer your questions! If you have an inquiry about reverse mortgage pros and cons give us a call Toll Free (800) 565-1722 or request request your quote

A few more articles we think you’ll find helpful:

From Trusted 3rd Parties:

24 Comment(s)
12/10/08 6:18pm
Pros and cons about reverse mortgages-or any financial issue-is so important. It’s important to make sure you have more pros than cons so you can have a successful conclusion.
Jessie maloy
12/2/09 12:27am
Please send me information on several banks that do Reverse Mortgages as I’m very interested.
12/30/09 1:53pm
My grandma is 76, retired once but had to start working again to keep up with the property taxes. My father is 52 and moved in with her a while ago so that he could pay the mortgage but now he is falling behind. I help out with what I can but it’s not nearly enough. Both my grandma and father DO NOT want to leave the house, nor sell it. They both insist that they want to keep the house to pass down to me. They have been looking into a reverse mortgage so I started to read up on them (great article by the way, it’s my biggest resource with all the links and stuff) and I’m concerned because my grandma wants me to promise her that I’ll buy the house when the time comes. The house was recently assessed at 509,000, they owe 208,000 on it. If they do go ahead with a reverse mortgage and assuming she only use’s the money she receives to pay off the original mortgage (she’s very stable on her living expenses and between my father and I the insurance and taxes will be taken care of) would I be looking at a 208,000 loan when this is all said and done or something much higher?
Michael Branson
12/30/09 9:24pm
Mike, this is an excellent question and replied in a new post you can find here reverse mortgages and heirs. Please feel free to contact us with additional questions!
Carol Reising
1/13/10 11:19pm
Regarding the rule that the homeowner has to reside in the home: how long could that homeowner be absent (e.g. on an extended vacation) before they would be considered not residing in the house. Would they be allowed to have someone else living in the house to caretaker?
Michael Branson
1/14/10 12:57am
Hi Carol, this is also an excellent question and replied in a new post here reverse mortgages and occupancy. All questions are welcome and I’m happy to answer them!
Michael Kaplan
2/4/10 8:24pm
What happens to the Loan/property when the Senior/borrower passes away, and the heirs don’t want/need the home?
Michael Branson
2/4/10 10:19pm

Hi Michael-Just as with any other loan, the heirs are never obligated to do anything. If there is equity in the home, then it would certainly benefit the heirs to contact a local real estate agent and to sell the property and realize the remaining equity. Heirs have the opportunity to garner all personal effects from their loved ones and then they can go through estate auctions or any number of services to help in the disposal of furniture, etc that is unwanted or unneeded.In those instances where the property no longer has any remaining equity, the heirs can simply notify the lender that they do not intend to market the property and the lender can make provision to take the home back immediately and dispose of the property. There is no recourse on a reverse mortgage and no adverse repercussions for doing this. The best way to proceed is always by contacting the lender (servicer) first and discussing your options with them and being completely honest with them up front. Since there is no recourse, they can make it very easy for heirs to step out of the process quickly and cleanly.While the lender would prefer that the heirs take the property and pay off the loan through cash, a new loan or sale proceeds, if the heirs do not want the home and do not intend to sell the property, the lender would actually like to know this information as soon as possible just so they can begin efforts to market the property immediately, thereby reducing any potential losses. Communication is the key.

4/24/10 12:40am
Nice article, very informative. What if the wife is 66 and the husband is younger than 62, the loan would have to be made in the wife’s name only as I understand. But if she dies first, the husband is left without a home? Or can the husband’ name be added back to the house title after the loan is made? Thanks, R
Michael Branson
5/5/10 3:42pm

Roberta,You have two different issues. The wife can always leave the home to the husband upon death, but the real issue is what happens next with the reverse mortgage. The husband would inherit the home based on whatever vehicle the couple had in place to transfer title upon the death of a spouse, but the reverse mortgage would become due and payable. this is one reason we never recommend that one spouse be removed just so that a couple can qualify for a reverse mortgage unless there are extenuating circumstances and the decision is still right for that particular couple.For example, we have had some couples still opt to remove one spouse because the remaining spouse could not live alone and had no choice but to sell the house and move once the original borrower on the mortgage died anyway. In another instance, the remaining spouse did not want to ever live alone and stated that she would sell the home the minute her husband was gone and therefore, they chose to proceed taking her off the title to qualify. Another instance was where the older spouse had a very large insurance policy and when he died, the younger spouse would receive enough insurance funds to pay off the reverse mortgage or if it did not happen for a period of three years or more, pay down the balance to a point where the younger spouse could obtain her own reverse mortgage and keep the remaining funds. The last case was one that the couple literally had no choice and would lose their home to foreclosure if they did not remove one of the borrowers.In any circumstance, you must understand that the reverse mortgage becomes due and payable when the person who is on the loan dies or is no longer living in the property. If you do not have adequate plans and resources to pay off the balance at that time, the home would have to be sold and the remaining occupant would have to move. That is why we do not recommend this action unless careful consideration has been given and steps for the alternate living arrangements of the younger spouse have been taken in advance.

Here is a link to a full article I have written on reverse mortgages after death

7/12/10 3:48pm
I’m 77 and my wife is 74. I know do know that if either of us should have to enter a nursing home, the nursing facility would be looking to take all of our valuable assets to pay for the nursing home, and that includes our home. With a reverse mortgage is the home untouchable?
Michael Branson
7/30/10 8:54pm

Hi Al-A reverse mortgage is a loan just like any other mortgage. It does not give you the homeowner any more or less rights than you would have had with a regular 30 year mortgage on which you had to make payments. The big difference is that the balance goes up and your equity position goes down which is the reverse of a regular or forward loan. In other words, the amount you owe increases over time as the interest accrues and you don’t make monthly payments instead of the balance you owe going down like on a regular loan due to the monthly repayment you make.As far as the nursing facility looking to take your valuable assets, I’m not an attorney so I can’t advise you, but I would suggest you seek competent legal counsel with regard to estate planning, family trusts, etc. I don’t see how a nursing facility can “take” anything from you and they certainly would not have any priority over the reverse mortgage lender even if you opted to grant the property to them. In fact, any change of ownership or both of you permanently leaving the property would trigger the lender calling the note due and payable.A reverse mortgage, or any mortgage for that matter, does not allow, or prevent, any actions by third parties allowable by law. But I really want to stress that you should contact a competent legal estate advisor to obtain guidance on this issue.

Linda Bean
10/16/10 5:18pm
My brother and I inherited our parents paid for home which he lives in. He is 62 and single. His income is only about $1300 a mo. If he had to quit work he’d only have about $600 in SS to live on. The home is worth about $170,000. We have a $74,000 mortgage on our house. If we were to sell our parents home, I could maybe pay off ours, but he couldn’t do much with his half. Not enough to buy anything. I’m 64 and would like to get out from under our mortgage. BUT, I don’t want to throw my brother out of our parents home as he has no place to go. If we got the reverse mortgage, it would benefit me, but is a bad way of using our parents money, and whenever he can’t work anymore, he’d have to move anyway. Do you have any ideas?? Thanks for your very useful information on the pros and cons of a reverse mortgage!
N. Luttio
3/9/11 3:18pm
Interesting information – thank you. My questions are: What happens if the sole remaining spouse must leave the home to enter assisted living elsewhere? Is the loan immediately due and payable? Will the lender stop the monthly payments to the spouse immediately? Will the lender wait until the home can be sold, and if so, does the borrower only owe what he or she received from a third party? What changes, if anything, if family members buy the house at a currently appraised fair value? Also, we have heard that there is some kind of “insurance” that is part of the original contract (in California) – what does this insurance do for the homeowner?
Michael Branson
3/14/11 9:45pm

All great questions and things people need to know and consider.Firstly, once the lender becomes aware that the last borrower permanently leaves the home, there will be no more additional payments made if the borrower is receiving monthly payments or has a line of credit. The lender will begin working with the borrower or the borrower’s family to arrange for repayment of the debt which means that it is due and payable, but they will work with the borrower or the borrowers’ family so that they may list the home for sale or work to arrange financing so that they can refinance the debt themselves. Lenders know that this all takes time with listing and title, etc. What they will not do is hold off indefinitely if they see that no actions have been taken to repay the debt or sell the home. Communication is the key here.Your next question pertains to the non-recourse nature of the loan. If the property is sold to a bona fide third party, and if the sale price is not sufficient to pay off the entire reverse mortgage loan, then the borrower and the borrowers’ heirs do not have to pay any shortfall resulting from the sale. The borrowers or their heirs (depending on who is selling the home) would have already been working with the lender and HUD, they would already have known the market value of the home and would have already approved the sale price of the home. At this point, regardless of how much money the borrowers had received, they and their heirs would owe no more than the property sold to for a bona fide sale to a third party. The “change” in circumstances you refer to is that HUD does not agree to allow the borrowers or the borrowers’ heirs to keep the home for less than is owed on the mortgage. In other words, if the borrowers or the borrowers’ heirs wish to keep the home they may do so at any time as they always own it. But, they would be required to pay off the existing loan balance at the time, whether that was less than or more than the property’s appraised value. Obviously due to this distinction, most family members choose to keep the home only when the value is greater than the amount still owing on the reverse mortgage.There are two different kinds of insurance on every HUD loan, whether it is a regular forward loan or a reverse mortgage. The first is the same hazard insurance that every lender requires for HUD loans and conventional loans. Just as when you finance a car, the lender will be certain that you have the security, in this case the house, insured against fires, etc. The second insurance is the HUD mortgage insurance. On a reverse mortgage the HUD insurance insures both the borrower and the lender. It insures that the borrower will always receive the money owed to them under the program, and that if the lender does not pay them in a timely manner, then the lender must pay the borrower a late charge. It insures that if the lender were to become insolvent, HUD would step in and take over the loan to make sure the borrowers always receive their funds. It insures the borrowers and the borrower’s heirs that they can receive a non-recourse loan. It insures the lender against certain losses and allows them to send the loan to HUD if the loan to value gets to a certain point. It may sound like some of the cost of the insurance benefits only the lender and therefore should be borne by the lender, but just like the forward mortgage insurance premiums, it also benefits the borrower in that if it was not there, no lenders would offer the program in the first place so the borrower benefits by virtue of the fact that they have availability of the program. The HUD Mortgage Insurance is required in all states, not just California.

7/16/11 1:37am
Hi, question, what about if we have file bankruptcy, but did not include the mortgage? Can we still apply for a reverse mortgage?
Jody Pitterle
8/1/11 11:05pm
My parents have a reverse mortgage with our name on it. They’ve only had it for about 3-4 years now, but have decided they need to move in with my brother instead of keeping up a large home of their own. They’ve been trying to sell for over a year now, and recently told me they may just “walk away” from it to get moved. Will my husband and I be held responsible for the unpaid balance If and When it does sell? How does this work? We’re concerned about our credit since we’ve had a bankruptcy a year ago and don’t want to have another debt hanging over our heads. What can you tell us? Thanks for your input, Jody & Paul
9/8/11 1:54am
Can you start making payments on a reverse mortgage loan, so that the heirs do not inherit a huge balance??
jen webster
9/20/11 12:45am
My mother owns the house. She put my brother’s name on the deed and he lives in the house. So now they both own the house. She needs money to pay for home care aides for most of the day. Would a reverse mortgage be something to consider and how will that affect my brother still living in the house after my Mom passes on. Thanks.
Michael Branson
9/20/11 5:03pm
Hi Jen, If your brother is not 62 or over, he would not be able to be on title for your mother to be eligible to receive a reverse mortgage. If she took him back off title to get the reverse mortgage, when she passed, the loan would become due and payable and he would need to be able to either refinance the loan into his name, pay the loan off, or he would have to sell the property.If he is over 62, they can both go on the reverse mortgage and although she would not receive as much money, the loan would not become due and payable until they both permanently left the home. If he is not over 62 and does not have the means to pay off the lien upon your mom’s passing, then the reverse mortgage may not be the right choice for them as he would be faced with that inevitable circumstance upon her passing.
Gina LaRock
11/8/11 6:52am
My mother of 71 years owns her home free and clear. She is having a hard time paying the insurance and taxes and owes on a credit card. She lives on $1200.00 month. I help her out by paying half of the taxes. She is thinking of reverse mortgage. This would help with the up keep of the house. She wants to give the house to me when she dies. I am aware that I would have to pay back the loan. Question is: do I have to start paying back right away? I would sell the house right away. Will they wait till the house sells before I pay them back or will they demand payment right away. I already have one mortgage and do not want another one. Does this sound like a good idea for my mother? Thank you for the article. Gina LaRock
Michael G. Branson
12/1/11 5:44pm

Hi Jody,I’m a little hesitant to comment here since I’m not sure I understand the entire question. Reverse mortgages do not have a provision for non-occupant co-borrowers and since the benefit is greater for older borrowers, there would be no reason or benefit to them “having your name” on their reverse mortgage. What I suspect you may find is that you were only listed as the “alternative contact” on the loan and that is only a contact that the lender uses on a reverse mortgage in case they ever cannot reach your parents. If this is the case, then you are not “on the loan’ and you have no liability for the loan as an alternative contact.Unless you were over age 62 and living in the home at the time of the mortgage and also signed all the documents (i.e. the Mortgage or Deed of Trust and the Note which is the promise to repay the obligation), then you do not have any obligation whatsoever to repay the loan nor would the lender ever report a foreclosure against your credit. If you did not agree to repay the debt (sign the documents promising to pay), then the lender cannot report you to any credit reporting agency as not fulfilling your obligation as there is none.A reverse mortgage is a non-recourse loan which means that the lender and HUD can only look to the property to repay the obligation so they will not seek a deficiency judgment against you or your parents. HOWEVER, if the lender is forced to foreclose due to the fact that your parents choose to walk from the obligation rather than to sell the home, it would be like any other loan and the lender would have to foreclose on the loan which would be an item that would affect their public record, and therefore their credit.

If you do not remember if you ever signed any legal documents (which if you did not, then there is no question that you have no obligations), then you can always review your parents’ documents if they still have their copies and if not, check the recorded documents through the county recorder. Again, I cannot tell you the exact particulars of your parents’ loan, but I would be very surprised to find out that you were anything other than just an additional contact on your parents’ loan which carries no contractual obligation for anything on your part for their reverse mortgage with no credit concerns over their actions.

12/1/11 5:52pm
Hello Lupe, Some lenders have changed credit guidelines to require bankruptcy to be discharged for a minimum 2yrs prior to taking a reverse mortgage application. There are exceptions to this rule but would require compensating factors. Feel free to give us a call to discuss. You may also want to read our latest post on Reverse Mortgages and bankruptcy
12/1/11 6:34pm
Hi Gina,The loan does become due and payable when your mother passes. However, the lender and HUD do not want the house, they would have to do everything you would to sell it as well. They work with borrower’s heirs by granting periods for them to sell or refinance the property. What they ask is that you maintain contact with them and show them that you are making an honest effort to sell the home by supplying them with copies of the listing contract, etc. They will do their own due diligence such as appraisal to make certain that the asking price for the home is reasonable.No lender wants to have Real Estate Owned (REO) on their books and would much rather work with you to have the loan repaid by letting you sell the property. Having said that though, if they are forced to foreclose, various state foreclosure laws can make a foreclosure take months and months to complete so if they don’t feel like you’re making an honest effort, then eventually they need to begin the process since it’s going to take a while to complete. My advice to you is if your mother does get the loan, when this time comes, just keep the communication open with the lender, get a good real estate agent to work on the quickest possible sale and you should have no problems.