Some of the Cons of a Reverse Mortgage

For many people a reverse mortgage is a very useful tool.  It can pay off current mortgages thus relieving the home owner of the monthly mortgage payment. Of course, the taxes and insurance must still be paid, and the property maintained. The reverse mortgage can also be used to tap the equity that has built up in the home over the years.  All this is great, but one must also be well aware of some of the cons of a reverse mortgage.

First, lets talk about the expenses. Even though most of the expenses can be rolled into the HECM loan, they still exist.  When the expenses such as  up front mortgage insurance, origination fees, and other closing costs are added up, the total closing costs can easily be in excess of $10,000.  When taking the expenses plus the money paid to the borrower, the HECM loan beginning balance can be substantial.  This loan balance will increase over time as the interest and fees accumulate.  As the home equity is used, fewer assets are available to leave to your heirs.  You can still leave the home to your heirs, but they will have to repay the loan balance.  This is usually done by selling the home.  Your heirs can keep the home by paying the loan balance with funds from other sources.

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