Personal Finance

This is why I'll never take out a reverse mortgage - 5 hidden costs you need to know about

Maurie Backman

Published: March 14, 2025 12:54 pm

It’s an unfortunate thing that many seniors reach retirement age with very little savings. So if you get to that point and need money, you may be inclined to sign up for a reverse mortgage.

In fact, the reason reverse mortgages are appealing is that for many seniors, their home is their most valuable asset — especially when it’s paid off in time for retirement. But that doesn’t make a reverse mortgage a great idea. Here are a few hidden costs you need to know about.

1. Origination fees

It’s common for lenders to charge origination fees for a regular mortgage. And these exist for reverse mortgages as well. Some origination fees can be negotiable, but that’s not always the case.

2. Closing costs

It costs money to put almost any type of loan in place, and reverse mortgages are no exception. Closing costs on a reverse mortgage can include an appraisal fee, title search, surveys, and more.

3. Counseling fees

Homeowners who decide to take out a reverse mortgage need to undergo counseling from a HUD-approved agency before borrowing that money. The purpose is to make sure you understand exactly what you’re signing up for, since there tends to be a lot of misinformation about reverse mortgages. But you should expect to pay a modest fee for that counseling.

4. Mortgage premiums

When you put a reverse mortgage in place, you need to pay an initial mortgage premium to the Federal Housing Administration. But you’ll also be on the hook for an annual mortgage insurance premium while you’re carrying that loan.

5. Property-related expenses

One of the biggest pitfalls of reverse mortgages is that you still have to cover the costs of remaining in your home. That means having to shell out money for property taxes, homeowners insurance, maintenance, and repairs. If you’re struggling to afford these, a reverse mortgage may not solve your problems.

Think carefully before taking out a reverse mortgage

It’s easy to see why you’d want to tap your home equity to drum up cash for retirement. But before you commit to a reverse mortgage, make sure you understand the drawbacks.

If you pass away before your reverse mortgage is paid off, your beneficiaries might have to sell your home to fulfill that loan balance. So if keeping your home in the family is important to you, a reverse mortgage may not be an optimal choice.

It’s also a good idea to consult a financial advisor about a reverse mortgage. They may be able to offer guidance on whether it’s a good idea or not based on your individual situation. A financial advisor might also be able to suggest alternatives that don’t come with the risks of a reverse mortgage.

Finally, before you resign yourself to a reverse mortgage, think about some other ways you might be able to tap your home for income. You could, for example, rent out a portion of your home for money, like a finished basement. That income could make it so you’re able to manage your expenses without taking out a loan against your home.