What Not to Do When Taking Out a Reverse Mortgage
Reverse mortgages can provide retirement income, but hidden costs and common mistakes may leave homeowners and their families vulnerable.
Reverse mortgages can offer older homeowners access to cash by converting home equity, but they also come with significant risks if not handled carefully. With home values still high and many retirees facing higher living costs, reverse mortgages may look appealing this fall. However, missteps can lead to financial strain for both borrowers and their families.
Key Mistakes to Avoid
1. Ignoring the true costs
Reverse mortgages carry upfront fees, insurance premiums, and closing costs. Borrowers must also continue paying property taxes, insurance, and maintenance. Overlooking these expenses can erode the expected benefit.
2. Forgetting the impact on heirs
When the borrower moves out or passes away, the loan must be repaid—usually through selling the home. Families unprepared for this obligation may face tough decisions.
3. Borrowing more than necessary
Taking the maximum payout increases interest costs and depletes equity faster. Borrowers should calculate their actual needs and consider flexible credit lines instead of lump sums.
4. Overlooking benefits eligibility
Reverse mortgage proceeds aren’t taxed as income, but they can affect means-tested programs like Medicaid or SSI. Holding large sums in cash may disqualify recipients from critical benefits.
5. Skipping professional guidance
While counseling is legally required, it’s only the start. Independent financial advice ensures borrowers fully understand the long-term implications before committing.
The Bottom Line
Reverse mortgages can provide valuable financial relief, but they aren’t risk-free. By carefully weighing costs, involving family, and seeking professional advice, homeowners can avoid costly mistakes and make informed decisions about whether this option fits their retirement plan.
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