Although you could think of a reverse mortgage as your own money, it isn't free. The bank, which has to wait until you move out of your home or refinance it, want to be paid for the transaction. You will pay interest on the loan and closing costs just as in an ordinary mortgage.
As you draw down money against the equity in your home, the equity will be reduced. If you were planning to use that equity for retirement, a reverse mortgage will reduce the available funds. The interest you pay will also reduce the amount of money available to you. In addition, when you die, your heirs will receive less money if you have borrowed against the equity in your home.
With a reverse mortgage, you will not be able to get a loan for the full amount of equity in your home. If the value of your house drops substantially, the reverse mortgage lender wants protection that he will get his money back. A reverse mortgage is probably not the answer to all of your financial needs, particularly if you don't have a substantial amount of money accumulated before you stop working.
If you will be receiving SSI, Medicaid or other benefits, the advances you receive from a reverse mortgage could be considered assets, and you could lose eligibility for public assistance.
How To Do It
If after reviewing the disadvantages of a reverse mortgage, you feel it is a financial transaction that is right for you, you must first get counseling from a local HUD approved counseling service. The purpose of the counseling service is to make sure you fully understand how a reverse mortgage works. After counseling, complete an application form and pick a financial institution to work with. As in the case with a traditional mortgage, there are closing and interest costs.