Before you sign
Things to know before you get a reverse mortgage
Three things people wish they had understood earlier: how the fees are paid, why your spouse belongs on the loan, and what can put the loan in default.
The fees can be hard to see
The costs of a reverse mortgage can be substantially higher than other ways of borrowing against your equity. You will pay an origination fee, an upfront mortgage insurance premium, ongoing mortgage insurance premiums, loan servicing fees and interest. The federal government limits what lenders can charge, and the origination fee is capped at $6,000.
These fees are not always obvious, because they are usually paid out of the money you borrow. You never write a check, which can obscure the fact that you are paying them. In practice, the fees and interest come out of your home equity.
Add your spouse as a co-borrower
Pay attention to the residency rules. A reverse mortgage must be taken against your principal residence — the place you spend the majority of the year. If you leave that residence for six or twelve consecutive months, even for medical reasons, the lender may end the reverse mortgage and require the home be sold to pay off the debt.
This is a particular risk for married couples living together where only one name is on the reverse mortgage documents. In that case the surviving spouse could be forced to sell the home they are still living in. To avoid it, add your spouse as a co-borrower, or at minimum confirm they qualify as an eligible non-borrowing spouse. This is the single most consequential detail on this page.
You still have obligations
Factor in property taxes and homeowners insurance when you work out whether a reverse mortgage supports you in retirement. Nearly all lenders require you to stay current on both, because the house is their collateral — if it is damaged it may not sell for fair market value, and the lender does not get their money back.
After taking out a reverse mortgage you have obligations to your lender, and if you do not meet them the lender may foreclose. This is a real issue, not a theoretical one. According to a 2019 Brookings Institution paper, 18 percent of reverse mortgages ended in foreclosure — sometimes because property taxes went unpaid, but most often because the homeowner no longer lived in the home.
If keeping up with taxes and insurance is a concern, ask about a set-aside. Funds can be reserved from your loan proceeds to cover those bills for a set number of years, which removes the risk entirely.