Reverse mortgages — the risks nobody mentions

This article is for educational purposes only and does not constitute medical, legal, or financial advice. Every family situation is different, and you should consult with appropriate professionals about your specific circumstances.

I'm going to be direct about this: reverse mortgages have real downsides that don't get enough attention. The companies marketing them show glossy brochures with happy retirement couples, and they emphasize the benefits. They're not wrong about the benefits, but they're not interested in talking about the problems. Your job is to understand what can actually go wrong so you can decide if this is worth the risk for your parent.

The challenge is that reverse mortgages are legitimate financial products. They help some people and genuinely create problems for others. The issue is that you don't always know which category your parent falls into until you're already committed. That's why you need to think through the risks before you sign anything.

The Cost Problem Nobody Plans For

Let's start with something concrete: the fees and interest on a reverse mortgage are substantial, and they grow over time in ways that surprise people.

When your parent takes out a reverse mortgage, they pay an origination fee (usually 1 to 2 percent of the loan amount). If the loan is $200,000, that's $2,000 to $4,000 right off the top. There's also an appraisal fee, typically $300 to $500. There's a credit check fee. And there's mortgage insurance (usually 0.5 to 2.5 percent annually, depending on the loan type). These costs add up to $5,000 to $10,000 or more on a moderate-sized loan, and these costs are built into the loan itself, so they accrue interest.

Then interest itself compounds on the entire loan balance. A variable-rate reverse mortgage might start at 5 to 6 percent interest, but the rate can change with market conditions. Each month, the interest accrues and gets added to the loan balance. Your parent isn't making payments to pay it down, so the balance grows.

Here's the math that keeps people awake at night: if your parent borrows $150,000 at 6 percent variable rate and doesn't touch the money, in 10 years the loan balance could be over $270,000. In 15 years, it could exceed $390,000. When your parent's house sells, the lender gets paid first, and then your parent's heirs get what's left. If your parent lives a long time and doesn't use the line of credit, the debt grows so large that there's nothing left for the estate.

The people who get hit hardest by this are the ones who take out a reverse mortgage for an immediate expense, then don't need additional funds. They pay all those fees and insurance costs upfront but only borrowed what they needed. The debt still grows every month, eating away at their equity.

The Cognitive Decline Risk

Here's something that keeps elder law attorneys up at night: reverse mortgages are sometimes obtained by people who are already showing signs of cognitive decline. Their thinking isn't quite right anymore, but it's not far enough gone to trigger obvious alarms. They can still sign their name and repeat back what they've been told, but they're not thinking clearly about long-term consequences.

This is a vulnerability, and it's not theoretical. There are families who've had to deal with a parent who took out a reverse mortgage because they were confused, because they were being pressured, or because they didn't fully understand what they were signing. Once the loan is in place, it's almost impossible to unwind it without selling the house.

If you're noticing your parent having memory lapses, confusion about finances, or difficulty making decisions, this is a red flag for any major financial commitment, including a reverse mortgage. Push for an independent cognitive evaluation before your parent proceeds. Your parent might resist, but the stakes are high enough that it's worth the conflict.

The Facility Care Trap

This is probably the single biggest problem with reverse mortgages, and it's the one that catches families off guard.

Your parent is living in their house with a reverse mortgage. Then they have a fall, or a stroke, or their dementia gets worse. They need to move to assisted living or a nursing facility. They assume they can always move back home if they improve. But there's a catch in the reverse mortgage agreement: if your parent leaves the house for more than 12 consecutive months with no intention to return, the loan becomes due immediately.

This creates a brutal timeline. Your parent goes into a nursing facility thinking they might recover enough to go home. Months pass. Their condition doesn't improve. The family realizes they're not coming back, but now you've got a deadline. The house needs to be sold quickly, or the loan needs to be paid off another way. You can't just let the house sit empty while you decide what to do.

And here's the complication: sometimes the 12-month clock isn't clear until you're already in the middle of it. Is your parent "living" in the house if they're in the facility temporarily? If they go home for a weekend? These questions don't have clean answers, and families have spent thousands on legal fees trying to figure out what the lender will actually do.

Some families have had to sell their parent's house faster than they wanted to, at worse prices, because of this deadline pressure. That's not theoretical. It happens.

The Spousal Complication

If your parents are married and both live in the house, and only one of them is 62 or older (the age requirement for reverse mortgages), there's a significant risk. The one who is 62 can get the reverse mortgage, but the spouse who is younger has a major problem if the older spouse passes away.

Here's what happens: when the borrowing spouse dies, the surviving younger spouse no longer has a borrowing spouse living in the home. The loan becomes due. The surviving spouse needs to either pay off the loan immediately (which most people can't do) or move out (which means losing their home). Some surviving spouses have had to leave their homes because they couldn't afford to pay off the reverse mortgage debt after their spouse passed away.

This risk is actually declining as rules change, but it's still a real issue depending on when the reverse mortgage was taken out. If your parents are considering a reverse mortgage and one spouse is significantly younger, get legal advice on how this situation would be handled if the older spouse dies first.

The Medicaid Complication

If your parent might eventually need Medicaid to pay for nursing home care, a reverse mortgage creates problems. Medicaid looks at how much money your parent is spending and on what. If your parent takes out a large reverse mortgage payment and spends it carelessly, Medicaid might claim it was a fraudulent transfer (trying to hide assets) and penalize your parent. This gets complicated quickly, and it's another reason to get professional advice before taking on this debt.

The Predatory Lender Problem

Most reverse mortgage companies are legitimate. But some target vulnerable seniors specifically, marketing aggressive reverse mortgages to people who don't need them, or selling them as solutions to problems they don't actually solve.

You'll see commercials with celebrities promoting reverse mortgages. You'll see targeted mailings to seniors. Some of these are fine, just normal marketing. Some are more aggressive. The issue is that vulnerable seniors—people who are a little confused, who are lonely, who feel financial pressure—are exactly the people who are targeted hardest.

If your parent is getting calls or mailings about reverse mortgages, and they're asking you about it, this is worth investigating. Ask your parent why they're suddenly interested. Are they feeling financial pressure? Are they confused about their options? Are they being sold a problem that doesn't exist?

Legitimate reverse mortgage counselors will help your parent understand whether this is a good idea. Aggressive salespeople will tell your parent it's always a good idea and push toward a sale.

When Your Parent Isn't Managing the House Anymore

One of the requirements for a reverse mortgage is that your parent maintain the property in reasonable condition and keep up with property taxes and insurance. If your parent is showing signs of dementia or severe depression, they might not be able to do this. Your parent might forget to pay the property tax bill. Or the house falls into disrepair because your parent isn't doing basic maintenance.

When this happens, the reverse mortgage lender can call the loan due if the property drops below acceptable standards. You're suddenly forced to either get the house fixed up quickly or sell it to pay off the loan. This has happened to families who didn't anticipate how much supervision their parent would need.

What You Actually Need to Know

Before your parent gets a reverse mortgage, here's what needs to be true: Your parent's thinking is clear and sharp. Your parent actually needs the money and has a specific plan for how to use it. Your parent is likely to stay in the house for many years or is willing to accept the 12-month facility care deadline. Your parent can manage the ongoing costs of the property (taxes, insurance, maintenance). Your parent doesn't need Medicaid planning, or you've talked to an elder law attorney about the interaction. Your parent's spouse (if any) understands the risks and has signed off on the decision.

If any of these things aren't true, a reverse mortgage is probably not the right tool. There might be other options: a home equity line of credit (if your parent qualifies), downsizing, selling the home and renting in a way that preserves flexibility, or other financial strategies.

The fact that a reverse mortgage is possible doesn't make it the right choice. Your job is to make sure your parent understands what they're getting into and what can go wrong.

The Bottom Line

Reverse mortgages serve a purpose. For some families in the right circumstances, they genuinely help. But they're not a panacea, and the costs and risks are real. The problem is that the people selling them have every incentive to downplay the risks, which is why you need to read the fine print carefully, ask hard questions, and get a second opinion from someone who doesn't have a financial stake in the decision.

Your parent might still decide to get a reverse mortgage after understanding all of this. That's fine. At least you'll go into it with eyes open, knowing what the real risks are and having a plan for managing them.

How To Help Your Elders is an educational resource. We do not provide medical, legal, or financial advice. The information in this article is general in nature and may not apply to your specific situation. If you are concerned about a loved one's cognitive health or safety, consult with their healthcare provider or contact your local Area Agency on Aging for guidance and support.