Reverse mortgages are billed as one of the most reliable and least risky retirement income solutions. While they allow homeowners of retirement age to access the equity they have built up in their homes over the years, they are also complicated and expensive, and they come with hidden risks that many lenders downplay. When compared to investing in real estate for retirement, reverse mortgages simply don’t offer the same benefits.

In essence, a reverse mortgage is a loan which permits a qualified homeowner to borrow against his or her home equity. While this solution may appeal to a person who has built up a lot of home equity but struggles to meet daily living expenses, reverse mortgages come with high fees and insurance premiums that diminish their value.

Origination fees, service fees and closing costs all eat into the loan amount, making reverse mortgages a poor solution for people who may sell or move out of their home within a five-year period. Also, compound interest applies to reverse mortgages, meaning that they become more expensive the longer a borrower keeps the loan out. Worse, some lenders call in loans if a borrower spends more than 12 consecutive months in a live-in medical facility.

These risks alone should give retirees pause to reconsider. However, there are additional drawbacks that make them an even more precarious proposition. Monthly insurance premiums are applied to these loans, and if they are not paid up front, they are tacked onto the loan amount and start accruing interest charges. Borrowers who access a large percentage of their home equity also expose themselves to further risks, including the possibility of generating a debt that exceeds the value of their home.

The amount of money owed on a reverse mortgage will also keep building and building over the life of the loan, since borrowers are not required to make monthly payments. A standard reverse mortgage doesn’t come due until the borrower moves out of the house, sells the house, or passes away. Interest builds up the entire time, and in cases where the borrower passes away, heirs are often left scrambling to pay off ballooning debts.

Real estate retirement investment options offer a better solution. Cash flow property investments are ideal for retirees seeking monthly income to meet living expenses. Investors with a longer-term view can also cash in on property appreciation and other types of investments which deliver significant returns without a lot of risk. On average, real estate investments outperform bonds, CDs and other “safe” investments without exposing investors to the volatility of the stock market.

Meridian Pacific Properties is a premium real estate investment collective. We specialize in meeting the income needs of retirees through carefully researched investments in proven markets throughout the United States. Our expert analysts look at hundreds of markets around the country, assessing historical performance as well as potential for future growth. We perform due diligence on behalf of our clients, acquiring renovated properties which already have paying tenants. The end result is a reliable, low-risk, turnkey income and investment solution.

To learn more about our retirement investment options, or to request one of our free performance reports, please contact us at Meridian Pacific Properties.