• Nichole Fox

Is there a "catch" to a Reverse Mortgage?

With any loan, the “catch” is always that the balance and interest must be paid back upon maturity. This is true for all mortgages. In the case of a Reverse Mortgage, no monthly payments are made. Instead, the balance of the loan slowly grows over time as it accrues interest until the last borrower leaves the house permanently. At that time the entire loan must be repaid.

However, with a reverse mortgage, there are extra protections in place. The entire balance cannot exceed the market value of the home. If it does, the FHA absorbs the difference and no additional money is owed by the homeowner, or the heirs. In that sense, both the banks and the homeowners are protected in the event of a housing downturn. Other types of loans, such as a Home Equity Line of Credit (HELOC) or even normal forward mortgages do not offer such asset protection.

In this sense, a Reverse Mortgage is considered a very safe program. The National Council on Aging is a good, independent 3rd party resource that can help you look at the program objectively.

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