5 Scenarios Where a Reverse Mortgage is a Bad Investment

Many older Americans use reverse mortgages to supplement their retirement. However, using your home’s equity to generate quick cash is not always a good idea. Here are some common situations where a reverse mortgage is a bad investment.

1. You Have Heirs

A reverse mortgage loan must be repaid when you no longer live in your house. For many people that happens when they pass away. If you have heirs and plan to leave them an inheritance, any remaining balance from your reverse mortgage loan will come out of their inheritance. For example, let’s say that your reverse mortgage loan is for $150,000 and your heirs sell your home for $250,0000. After paying off the remaining balance of the loan, they only receive $100,000. However, a reverse mortgage can really hurt your heirs if the remaining loan is greater than the value of your home.

2. Others Live in Your House

When you take out a reverse mortgage, you are allowed to continue living in your house. However, if others live in your home who are not on the loan’s paperwork, they could be forced to leave when you no longer live there. For example, if they can’t afford to pay off the loan, the lender will foreclose on the home.

3. Your Health is in Decline

A reverse mortgage is a bad investment if you are in declining health. For example, if you get ill and have to move out of your home and into an assisted care facility, the remaining balance on your loan will come due. If the loan can’t be repaid, the lender will take control of your home.

4. You Plan to Move Soon

Many older Americans move from their home into retirement communities or to live with their relatives. If you are planning on moving, a reverse mortgage is a bad investment. You will end up having to repay the loan as soon as you move out of your house. If you are unable to repay the loan, you will lose your house.

5. You Can’t Afford to Live in Your Home

Many retirees on a fixed income have a hard time affording to stay in their homes. For example, paying utilities, insurance, and taxes can be quite costly. Furthermore, if your home is in need of costly repairs, living there can be even more expensive. Therefore, if you can’t afford to continue living in your home, then you definitely can’t afford a reverse mortgage. As soon as you are no longer able to afford to live in your house, your loan will be due and the lender will foreclose on your home (if you are unable to repay the loan).

In short, a reverse mortgage is a bad investment if you plan on leaving your house to your heir, or you have others who live in your home. Furthermore, if you believe there are any reasons why you may no longer be able to stay in your home; declining health, planning to move, or you can’t afford to live there anymore, you should not take out a reverse mortgage.