What are some of the pitfalls of reverse mortgage programs?


Quick Answer

Some of the pitfalls of reverse mortgage programs include the risk of losing one’s home when the elderly owner requires nursing home care, notes Forbes. A lender may foreclose a home upon the elder’s death when his heirs fail to repay the loan, cautions the New York Times. The loan offers less cash than the prevailing market value of the home, and interest is chargeable on the outstanding balance, which raises the loan significantly in case of default.

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Full Answer

An elderly person risks homelessness when he moves out of the home into a nursing home. The high cost of nursing care may overwhelm the patient and make him unable to repay the loan, according to Forbes. Once the elder moves out of the home, the program displaces his non-paying dependents, as they are not party to the mortgage.

In case of the elder’s death, the heirs must offset the debt and its accrued interest, which may be higher than the home’s market value, or else face foreclosure, according to the New York Times. The Federal Housing Commission caps reverse mortgages, and borrowers receive less than the market value of their homes, reports the Los Angeles Times. Available at variable interest rates, the mortgages fluctuate, which translates to high costs for the borrower.

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