Reverse mortgage: Everything you need to know

Owing more over time. Interest accumulates onto the balance that you owe every month as you receive the funds. This means that you owe more money as the interest on the reverse mortgage accumulates over the long term.  

Changing interest rates. Typically, reverse mortgages have variable rates. That means they change with the housing market since they are linked with the financial index. Those types of loans also provide more options on how you receive your funds through the reverse mortgage. While some reverse mortgages offer fixed rates, you are usually obligated, at closing, to take the loan as a lump sum. Oftentimes, the amount of money you can borrow is less than you would receive with a variable-rate loan.  

Interest is not tax deductible. Until your loan is repaid, either in part or in full, the interest is not deductible on income tax returns.  

Spouse. In some situations, your spouse can keep living in the home if he or she pays insurance and taxes and maintains the home. Since he or she was not a part of the loan agreement, however, your spouse will stop receiving funds from the home equity conversion mortgage, or HECM.  

While there are many things to consider about reverse mortgages, it is important that you know how much money it is going to cost you in fees and other costs—as well as over time. Variable interest rates, tax benefits (or lack thereof), and what rights your spouse has after you pass away should also be considered beforehand.