While reverse mortgages do appear to be a source of money for struggling seniors, there are some definite cons that you need to consider before pursuing this route. First, these mortgages are expensive even though they do not require a monthly payment. The upfront costs, which can be rolled into the loan and thus take away from the equity you have on your loan, are quite a bit more expensive than the closing costs on a refinance or home equity loan.
In addtion, you will pay interest on a reverse mortgage, and the amount of this cost depends largely on how long you hold onto your home after getting the loan. If you hold it for 20 years, you accumulate 20 years worth of interest charges. When the home is sold after you have moved on, those interest fees will come out of the sale price or will have to be paid if the home does not have enough value to cover the costs.
Using a reverse mortgage will take away from the value of your home. While you do receive some of that money right away to use for your expenses, when you add in the upfront costs and the interest, you may end up with little to show for the many years you have worked to repay your mortgage. If you were planning to leave the family home to your children or grandchildren, they may be left with little of value.
Some seniors do not know that a reverse mortgage can prevent them from qualifying for Medicaid because loan proceeds are considered an asset whereas untapped equity in your home is not as long as you are living in it. Each state’s Medicaid eligibility rules are slightly different, but if you are depending on this as your source of medical insurance, make sure you will not hurt your qualification by taking out a reverse mortgage.