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What's the downside of a reverse mortgage?

Loan-origination fees (part of the upfront costs you pay to take out such a mortgage) can top $7,000 on a $500,000 home. Those sums are attracting aggressive salespeople intent on getting you to take out a reverse mortgage whether you need one or not. Some may try to persuade you to invest the proceeds in high-priced financial products, such as annuities, boosting their commissions even more.

No one can say how widespread such tactics are. But several lawsuits have been filed, and the Senate Special Committee on Aging was concerned enough to hold a hearing in December 2007, while FINRA (the Financial Industry Regulatory Authority) issued an investor alert in March of 2008.

Annuities are frequently pitched to seniors along with a reverse mortgage. However, you're unlikely to earn more with an annuity than you are being charged in interest and fees on the reverse mortgage. Worse, you might have to pay surrender charges that are upwards of 20% to take money out in the first few years.

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