Reverse Mortgages - Pros and Cons

By: Goran Jovanovic Home Loans 1 Follower


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A reverse mortgage is a type of loan that allows seniors to turn some of their home's equity into cash. Unlike a home equity loan or second mortgage, however, the loan doesn't have to be paid back until the home is sold or it is no longer the mortgage holder's primary residence. With today's tough economy, reverse mortgages are becoming more popular and this type of loan can be a good source of income, but they also come with some pretty hefty fees. Here are some pros and cons of a reverse mortgage:

 

Pros

 

- You can choose how to receive your money from a fixed monthly payment, lump sum, line of credit or a combination of these options.

- Income from a reverse mortgage typically does not affect Social Security or Medicare benefits.

- You cannot owe more than the value of your home, even if you've received more in payments than your home is worth.

- Most loans do not have income requirements and you do not have to own your home fully in order to qualify.

- You retain ownership and title to your home.

- The Home Equity Conversion Mortgage (HECM), which is the FHA's reverse mortgage program, allows you to live in a nursing home or other medical facility for up to 12 months before repayment is due.

- After the home is sold and the loan and fees are paid, any remaining equity belongs to you or your heirs.

 

Cons

 

- You must be 62 years of age or older to qualify.

- Proceeds from a reverse mortgage could impact Medicaid eligibility.

- Origination and closing costs, servicing fees and interest rates are usually quite high.

- Many lenders require that you meet with a debt counselor prior to loan application.

- You are still responsible for taxes, homeowners insurance, maintenance costs and other expenses. If you are unable to pay these, repayment of the loan may become due.

- Interest is not tax deductible until the loan is paid off.

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