Just like any other types of loans, there are many potential dangers of reverse mortgages. Borrowers should exercise due diligent prior to determining if this type of home loan is right for them.

First, what is a reverse mortgage?

A reverse mortgage pays a set amount of money each month to the homeowner. These loans, which are for seniors, continue payout until the homeowner's death or when the last person on the loan leaves the home.

One of the primary conditions for a reverse mortgage is that the borrowers have to continue to live in the home for their entire life. A reverse mortgage is good till death or relocation and when it happens, the home is sold and the reverse mortgage lender owns the home.

Unlike traditional home mortgages, there is no monthly mortgage payment. Debt is due when the borrrower(s) pass away or relocate.

According to FHA rules, it states that

"When you sell your home or no longer use it for your primary residence, you or your estate will repay the cash you received from the reverse mortgage, plus interest and other fees, to the lender."

And that's where the dangers of reverse mortgages lie.

As stated in most of the contracts, you will retain use of your property as long it is your primary residence.

However, as reverse mortgages are for seniors, there exists a possibility that you might relocate to another state or be confined to a home care facility in the near future. Both conditions will default the terms of the loan and the home will be sold. If their children can't afford to pay off the loan, they will, of course, lose the house.

As such, a reverse mortgage is best suited for seniors who plan to continue living in their home for the rest of their life.

The other danger of reverse mortgages is the initial cost of borrowing which is typically high compared to a traditional home mortgage. If not all, most reverse mortgages are on adjustable rate mortgage.

And since you will not be getting the fairer side of the deal and due to the uncertainty of adjustable rate, your debt may increase. When it becomes due and payable, you may be owing a lot more debt as the value of your home equity decreases.

A reverse mortgage is a special type of home loan for seniors that lets a homeowner converts the equity in his or her home into cash which can be useful in times of urgency.

However, it's important to be well aware of the disadvantages of reverse mortgages and make a wiser decision to determine whether or not it's the best alternative option for retirement.

If in doubt, it's best to seek the professional opinion of your attorney.