Personal Finance

Dave Ramsey gives his brutally honest takedown on reverse mortgages - and he's spot on

Ian Cooper

Published: December 10, 2024 12:17 pm

Last Updated: December 16, 2024 5:51 pm

If you’re thinking of getting a reverse mortgage, don’t do it, says Dave Ramsey.

First, before we jump into why Ramsey dislikes them, let’s first get into what they are.

A reverse mortgage is only available if you’re 62 or older, and if you have already paid off a big chunk or all of your existing mortgage. Much like a second mortgage, a reverse mortgage allows you to access your home equity paid out in a lump sum, a line of credit, or a fixed monthly payment from the lender to the borrower.

Key Points About This Article

• If you’re thinking of getting a reverse mortgage, don’t do it, says Dave Ramsey.
• With a reverse mortgage, you can get some cash upfront. And there are no monthly payments.
• With reverse mortgages, there are substantial, ridiculous fees, including origination fees, mortgage insurance premiums, closing costs, service fees.
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You can get some cash upfront.  And there are no monthly payments.

Sounds great, right? Nope.

Similar to a regular mortgage, with a reverse mortgage, you put up your home as collateral on the loan from the reverse mortgage. So, if you fail to meet the terms of the loan, you could lose your home to the lender. Oftentimes, it’s not worth the aggravation.

Also, as long as you continue paying your property taxes, insurance, etc., you won’t owe the mortgage company anything… at least not yet. But once you move or if you die, the balance of the reverse mortgage must be paid in full.

Reverse mortgages involve fees such as origination fees, mortgage insurance premiums, closing costs, and servicing fees. These fees are comparable to those of traditional forward mortgages, with the addition of a mortgage insurance premium that ensures the borrower and their heirs will never owe more than the home’s value.  All ridiculous, but owed. Worse, interest will add up quickly. Even though you won’t pay the loan back monthly, interest is tacked on the moment you take it out until it’s repaid in full.

It’s important to note that reverse mortgages are non-recourse loans, meaning neither the borrower nor their heirs will owe more than the home’s value at the time of sale. For example, according to Ramsey Solutions, “If you take out a $175,000 reverse mortgage at 6% interest on a $300,000 house and you don’t pay it back for 25 years, you (or your family) will owe a whopping $260,000 in interest on top of the $175,000 you borrowed.”

Sure, a reverse mortgage will give you cash upfront. There are no monthly payments.

However, it’s crucial to consider the fees, interest rates, and accumulating interest associated with reverse mortgages. While these loans provide non-recourse protections, meaning you won’t owe more than the home’s value, the costs can accumulate over time.

Again, if you’re thinking of getting a reverse mortgage, don’t do it, says Dave Ramsey. Also, for further advice on reverse mortgages, you should also check with financial advisors.