Risks of Reverse Mortgages

By Stacey
Apr 9, 2014 · 3 min

Although reverse mortgages are a great financial retirement product, they’re not perfect – and there are some risks to consider.

Risks of Reverse Mortgages | One Hour Translation

Having recently espoused the virtues of reverse mortgages, especially for freelancers and sole proprietors like many of my friends and (eventually) myself in the language translation business, I thought it best to revisit the topic and discuss some of the very real risks that come along with this financial product.

While I do believe the reverse mortgage is a great tool for extending your retirement after your main funds have dried up – and let’s face it, we’re all happily living longer and many of us scheme to retire early, so the chances that your investments won’t carry you far enough are rising – there are some serious problems that can arise out of a reverse mortgage arrangement. Here are a few tips for those older folks in the translation services business who might be considering a reverse mortgage.

Shop Around

First and foremost, just like any other loan, different banks will offer different terms. Don’t take the first reverse mortgage that comes your way, or assume that your bank will offer you a good deal because you’re an existing customer. Compare rates and terms and ask a lot of questions, because you can often get a better deal just by doing some research. You want to get the most value for your home’s equity, and the most attractive rates and other benefits, like an interest-paying account.


Most reverse mortgages have occupancy rules. In short, they spell out pretty clearly how much time you can be out of the house before the bank can declare that you’re no longer occupying it – at which time the bank would be within its rights to call in the loan and foreclose. Typically, the bank will send a letter you must respond to on the assumption that if you’ve moved out you won’t respond. If the holder of the reverse mortgage gets sick and must stay in the hospital for several months, it might trigger the foreclosure process.

Payback and Inheritance

Another aspect of the reverse mortgage to keep in mind is that it’s a loan. It’s a non-traditional loan, but as a loan it must be paid back. If the mortgage holder dies or must vacate the house, the bank is still owed its money. This might make it impossible to pass a home on to children, or might saddle them with debt if the value of the home has declined precipitously.

It’s also worth noting that just as with a traditional mortgage, the bank may require certain things like certain levels of insurance on the home, which might be more expensive that the home owner had planned. These are some of the things you have to consider.

End of the Asset

Finally, it’s worth thinking about the fact that your home is usually your last asset in a situation where a reverse mortgage is being considered. That means that once you run through those funds you’ll have nothing left. Think carefully before going this route.

Image courtesy nydailynews.com

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