Reverse Mortgage Pros And Cons
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can be affected if too much funds are withdrawn (and not spent) in one month.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.