What’s Wrong with Reverse Mortgages: Complete Professional Guide 2025

Reverse mortgages have become popular with people over 65 who want to earn extra money without moving out of their own home. How does it work? In a nutshell, the home is mortgaged to receive rent – which can be monthly, quarterly or all at once – while retaining the right to continue living in it. Sounds interesting, doesn’t it? However, the reality is that many people end up wondering what’s wrong with the reverse mortgage, because although it has its good side, it also entails risks and conditions that should be carefully analysed before signing anything.

I will tell you all this in a straightforward way, so that you can make the best decision, thinking of yourself and also of those who inherit your home.

What exactly is a reverse mortgage?

Basically, we are talking about a mortgage contract aimed at people of a certain age or with some degree of dependency. Here you do not ask for money to buy the house, but you use your house, already paid for and free of encumbrances, to earn income. In return, you continue to live there, as usual, as long as you respect the conditions of the contract.

Then, when the owner dies, the heirs can either repay the loan to keep the house or sell it to pay off the debt. Be careful: this is not as easy as it seems, because the law requires a notary and external advice, as the legal and family consequences can be quite delicate.

Advantages that are worth remembering

Although we are going to review what is bad about reverse mortgages, there is no denying that they have advantages:

• Allows for lifelong use of the house
• Improve income without selling the house
• Choose the payment method that suits you best

OK, good. But now it is time to be clear about the risks.

What’s wrong with reverse mortgages

Let’s cut to the chase: what are the downsides? Well, there are quite a few, and it is better to know them beforehand.

Costs and fees that can hurt

First, the cost. Between notary, appraisal, registration and insurance, the bill can be high, and normally these expenses are deducted from the money you receive. And I warn you that the arrangement fee is almost always higher than that of a normal mortgage. In the end, the money available is reduced more than many people expect.

Subtract wealth from your heirs

Another point of concern: the reverse mortgage involves a growing debt that adds up with interest and rents. When you die, your children or heirs will have to repay the debt if they want to keep the house. Will they be able to? Will they want to? Often not, and that means selling or even renouncing the inheritance. Look at this situation.

Risks if you live longer than planned

There is another nuance here. These mortgages are usually calculated on average life expectancy, but what happens if you live longer than expected? The money may not be enough. The truth is that it does not guarantee an unlimited annuity, and that can complicate the accounts.

Legal and fiscal complexities

I’m not going to deceive you, it is a complex product. You need to fulfil quite a few requirements, understand clauses with their technical part, present documentation, and be clear about what will happen with the IRPF or the patrimony depending on each case. That’s why a mortgage advisor in Mallorca can come in handy, so that you don’t get lost in all the red tape and small print.

When is this formula not suitable?

There are situations where reverse mortgages do not fit even with a shoehorn:

• If your heirs need the house free of encumbrances
• If you plan to sell in the short term
• When the home has liens or encumbrances
• Or if your income is already sufficient

In such cases, believe me, the cure could be worse than the disease.

Other alternatives with less hassle

Fortunately, there are more options: selling the property with a guaranteed rent (known as sale & leaseback), renting it directly, selling the bare property or looking for an annuity. There are also savings products designed for the elderly. There is no magic formula here, but they can be compared.

Questions to ask yourself

Before you sign anything, stop for a second and ask yourself

• Do I really need this money now?
• Do I want to protect the inheritance for my children?
• Can I bear the administration costs?
• Do I understand all the clauses?

If any of these questions make you frown, talk to a trusted professional.

Your mortgage advisor on Mallorca, to guide you

At José Sellés we have been resolving doubts about reverse mortgages for some time now in a friendly way, without small print or complicated twists and turns. If you are still thinking about what’s wrong with a reverse mortgage, we will help you to go through the pros and cons calmly, so that the decision is the right one for your family.

You can consult us without obligation and see together other alternatives, with total transparency and the peace of mind of having your mortgage advisor in Mallorca by your side.