A reverse mortgage can provide a regular income to homeowners when they receive a loan on their homes. The loan does not have to be repaid until the owners die or sell the house. A reverse mortgage annuity can be purchased with the payments to pay for long-term care, according to the consultants at Medicare.gov. The same rules apply to the annuity payments as to the general reverse mortgage rules. Interest accrues on the loan and must be repaid when the loan is called in. While a reverse mortgage can help anyone over the age of 62 to stay in their homes and receive a regular income, there are disadvantages to reverse mortgages.
Eligibility
The loan on the home is considered an asset by the federal government. Those who wish to receive federal aid in the form of Medicaid or Social Security Insurance (SSI) may be disqualified because of the asset, report financial consultants at AARP. Additionally, long-term care is not always predictable and there may not be enough money from the reverse mortgage payments to pay for the expenses.
Rising Debt
On a traditional mortgage, payments reduce the amount of the total debt. Conversely, with every payment received on a reverse mortgage loan, the debt increases. Interest is continually added to the amount owed, and no payments are made to the lender to reduce that debt.
Inheritance
Heirs of an estate inherit the debt of a reverse mortgage. In addition to the rising debt due to interest, the equity in the house has been reduced, leaving heirs with less. AARP financial consultants report that many children are pleased to see their parents stay in their homes and do not rely on any inheritance. Many borrowers may want to consider talking the decision over with their heirs and discussing the consequences of the loan.
Costs
Reverse mortgages sold by proprietary lending companies typically are more expensive than government-backed loans such as the Home Equity Conversion Mortgage, though all reverse mortgages carry upfront fees, monthly service charges and closing costs. Costs vary between lenders. Sellers who plan to repay the reverse mortgage within a couple years may want to consider other forms of obtaining funds, such as a home equity loan to avoid high start-up costs.
Default
If all the conditions of the loan are not met, the lender can call in a reverse annuity mortgage. While the owner is receiving payments from the reverse loan, the homeowner is still responsible for upkeep and property taxes. If the homeowner misses tax payments, the loan can be canceled and must be paid off, including all the interest that has accrued.
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