Homeowners can structure reverse mortgages to meet their financial needs, getting the money in a single payment, monthly installments, or as a line of credit that can be drawn upon as needed.
Finally, reverse mortgages are nonrecourse loans, which means the homeowner will never owe more than the value of the home when it’s sold. The lender is on the hook for the balance if the sale price is less than the loan balance.
Disadvantages of a reverse mortgage
The most obvious drawback of a reverse mortgage is that it erases equity built over time. This can have a significant impact on heirs, who will generally be responsible for selling the home after its owner has died.
Reverse mortgages also can be expensive and complex. Origination fees, closing costs, and insurance premiums can cut into the equity and reduce the amount available to the homeowner. Since terms can be complicated, it’s easy for homeowners to struggle with the emotional and financial burden of increasing debt at an advanced age.
Homeowners who take out reverse mortgages also still must pay property taxes, insurance, and maintenance bills -- all of which can be extremely expensive and in some cases, account for more than half of their original mortgage payment. If taxes and fees aren’t paid, or the home isn’t maintained, the home can go into foreclosure.
