While reverse mortgage fees can be financed as part of the loan, they can add up quickly. If you borrow $300,000 in a reverse mortgage, you can expect to pay more than $12,000 in fees. Although these are standard costs that any homebuyer would have to pay, it’s important to keep in mind that with a reverse mortgage, you’re not building  equity— you’re taking on debt.

Understand what you’re getting into
Reverse mortgages are not only costly, they’re also complex—so much so that reputable lenders require borrowers to speak to a financial counselor before they sign on the dotted line.

“My opinion is that a reverse mortgage can be a very helpful tool, but it’s definitely not for every senior homeowner,” says Jim Wheaton, deputy director of Neighborhood Housing Services of Chicago and an AARP-certified reverse mortgage counselor.

Wheaton advises those seeking additional income during retirement to consider all of their options before taking out a reverse mortgage. Home equity lines of credit and some forms of government assistance are two alternatives.

You should also assess your long-term plans and how you intend to use the borrowed funds before you secure a reverse mortgage.  Wheaton says that since reverse mortgages include significant up-front costs, they are only economically feasible if you plan to live in your house for many more years.

An alternative without the risk
Just as the number of reverse mortgages is rising, many older adults are pursuing a different option—allinclusive retirement living at communities like Sedgebrook in Lincolnshire. Instead of whitling away home equity with a reverse mortgage, Sedgebrook residents can use a portion of proceeds from the sale of a house to fund the entrance deposit. But unlike a reverse mortgage, that entrance deposit is 100% refundable to them or their heirs.

“Your initial investment is preserved for the duration that you live on our campuses, and will be returned back 100% to either you or your estate,” says Tracy Dellaria, Sedgebrook’s retirement counselor.

Once they move in, Sedgebrook residents pay one monthly fee that includes all home maintenance and one meal every day at the restaurants on-site. Having a set cost for living expenses takes the guess work out of financial planning, giving community members a priceless sense of security.

“In a reverse mortgage, if you spend down the equity for your living expenses, including health care, you are at the mercy of the bank or broker who owns the home,” Dellaria says. “At Sedgebrook, if you run out of money and spend down the entire entrance deposit, you still have a the assurance of a lifetime of quality health care.”

As reverse mortgages grow in popularity, the marketplace is seeing a proliferation of lenders looking to get in on the action. When entering into such a complicated and potentially risky financial transaction, it’s critical to make sure you shop around, choose a credible lender, and seek advice from an objective third party.

“I’ve seen a few things that I’ve thought were questionable so far,” Wheaton says. “There are folks in the nonprofit business counseling people in foreclosure, and there’s a feeling among them that reverse mortgages have the potential to be the next predatory or suspicious lending activity.”