Reverse Mortgage Mistakes

Underestimating reverse mortgage fees

Reverse mortgage loans cost quite a bit more than the traditional home loan. The fees are about twice as much. On a $400,000 reverse mortgage loan, you can expect a little over $10,000 in fees and HUD insurance to be paid in closing. Qualifying for a reverse mortgage by removing the younger borrower from the title so only the older borrower remains.

Removing the younger borrower from the loan

Since there is an age requirement of 62, some borrowers simply remove the younger borrower from the title when applying for the mortgage. That is a mistake because if the older borrower/spouse becomes ill or unhealthy and passes away first, the younger spouse is now responsible to pay off the balance on the reverse mortgage. If the younger spouse does not have enough funds to cover the balance, he or she may be forced to sell the home.

Losing Medicaid benefits and Supplemental Security benefits

A reverse mortgage will not affect your social security or medicare benefits, but may impact your medicaid or supplemental security benefits. If you take the lumpsum payment and deposit the funds into your bank account at once, you may end up ineligible. If you don't spend the reverse mortgage payouts within the same month, it may take you over the Medicaid or SSI asset limit, which is $3,000 for couples and $2,000 for singles, and your eligibility for these programs could be in jeopardy. Contact your personal financial adviser or SSI administrator to understand the impact.

Not paying property taxes and insurance

A reverse mortgage requires you to stay current on property taxes, insurance, maintenance upkeep and HOA fees. If you fall behind on any of these, the bank has the right to sell your home by voiding your contract.