Reverse Mortgage Pros And Cons

Dated: 04/04/2014

Views: 1213

Pros of Reverse Mortgages

  • Allows the homeowner to stay in the home.
  • Can pay off existing mortgages on the home.
  • Simple to qualify for because no minimum credit score and generally no income requirements.
  • No monthly mortgage payments are due for as long as the homeowner lives in the home and meets eligibility requirements for maintenance and paying property taxes and insurance.
  • The homeowner receives payments on flexible terms:
    • Credit line for emergencies
    • Monthly payments
    • Lump sum distribution
    • Any combination of the above
  • A reverse mortgage can not get “upside down” so the heirs will never be personally liable for more than the home is sold for.
  • Heirs inherit the home and keep any remaining equity after the balance of the reverse mortgage is paid off.
  • Loan proceeds are not taxable.
  • The interest rate may be lower than traditional mortgages and home equity loans.

Reverse Mortgage Cons

  • The fees on a reverse mortgage are the same as a traditional FHA mortgage but are higher than a conventional mortgage because of the insurance cost. The largest costs are:
    • FHA mortgage insurance
    • Origination fee
  • The loan balance gets larger over time and the value of the estate/inheritance may decrease over time.
  • Although Social Security and Medicare are not affected, Medicaid and other need-based government assistance
    can be affected if too much funds are withdrawn (and not spent) in one month.
  • The program is not well understood by most individuals. However, the availability of independent reverse mortgage counseling helps.

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