I get the question a lot from prospective borrowers, “What are the disadvantages of a Reverse Mortgage?” It is a very easy question to answer because there actually are a few.
- Reverse Mortgages are Home Equity Loans and they will reduce the amount of equity you have in your home.
If you are in the market for a Reverse Mortgage, you probably are not trying to preserve long term equity, so this may not be a specific concern.
- Reverse Mortgages are currently insured by the Federal Housing Authority (FHA) so the collateral for the loan, your home, must meet the HUD minimum property guidelines.
This is particularly difficult in some instances such as with mobile homes and condominiums.
- Reverse Mortgages are difficult to obtain if your loan closes with your property in a trust.
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While I agree that a reverse mortgage is not right for everyone, I also see evidence that only a small number of homeowners trust them or the potential opportunities they create. Not everyone uses them to pay off bills or help out a friend. I have recently had reverse mortgage clients use the proceeds of their loans to diversify into gold, annuities and bargain-priced real estate. Whatever the outcome of those investments may be, the one principle that I understand and respect that is being followed here is diversification.
