The Pros and Cons of a Reverse Mortgage

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Are you age 62 or older and considering a reverse mortgage? These can be hard loans for many to understand, but they can be beneficial if you’re elderly and in need of some extra cash. It doesn’t have to be paid back right away. Generally, it doesn’t get repaid until the last homeowner has passed away or moved out of the property. So you will need to take into consideration the life expectancy of those living in the home when you are going to apply for a reverse mortgage.

Knowing the pros and cons before you jump into a reverse mortgage is very important.

Pros of a Reverse Mortgage

– You will receive a monthly lump sum of money.

– The homeowner gets to live in the home without making monthly mortgage payments.

– It can eliminate your existing mortgage.

– Your heirs will not be held liable if the sale of your home does not meet the balance of the loan.

– Your heirs will receive whatever money is left over after selling the home and repaying the reverse mortgage.

– The proceeds from the loan are not taxable.

– You can get a better interest rate than if you were to take out a personal loan for something.

Cons of a Reverse Mortgage

– The value of the estate decreases as the proceeds from the loan is spent.

– There can be high fees on a reverse mortgage – higher than a traditional mortgage. Fees for the FHA insurance and the loan origination fees can be higher than mortgage fees.

– Social security and Medicare are not affected by a reverse mortgage, but Medicaid can be affected. You’ll have to check your terms and keep that in mind when applying for your reverse mortgage.

– Reverse mortgages are hard to understand. Even many loan specialists might have trouble. So make sure you go with a reputable loan specialist who is well versed in reverse mortgages and can answer all of your questions.

– If you have to move out of the home, then the loan becomes due after a year of not living in the home. So if you end up having to be put into a convalescent home, then you will need to find a way to pay back that loan at that time.

– Your heirs won’t inherit your home. When you do die, the home will have to be sold to pay back what can be paid back of the loan.

– Many times the loan terms have adjustable rates. This can have an effect on the cost of the loan over time.

A reverse mortgage could be a viable option for cash for senior homeowners who either own their home or own most of it. You will have to talk to a financial consultant to see if this is the best option for your needs. Someone who is 62 with a longer life expectancy will get a substantially lower percentage of their home’s value than someone who is 80. But it’s definitely a way to stay in your home and boost your monthly income or pay for a large, unexpected expense.

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