The Pros and Cons of a Reverse Mortgage

The Pros and Cons of a Reverse Mortgage

A reverse mortgage could be a key component when it comes to any senior’s retirement planning, by providing funds now and for the future. However, the reverse mortgage is not necessarily the right choice for everyone. Therefore, to be able to understand if the reverse mortgage is right for you or not you need to understand the advantages and the disadvantages to help you in making a wise consideration.

The Pros of a Reverse Mortgage

  • The reverse mortgage is basically a loan to a homeowner and buyer who is at least 62 years or older to help them live a more comfortable life and have financial flexibility.
  • Another important advantage about the reverse mortgage is that the seniors who have acquired the loan can continue living in their homes and even retain the title to it.
  • You can also choose to take the funds you get from the reverse mortgage as a lump sum; line of credit that you can be able to tap when needed; a steady stream of monthly advances for a set period of time or as long as you live in the home or a combination of all these options.
  • The funds that you get from your reverse mortgage loan can also be used to pay off the existing mortgage on your home. While there will still be a lien on your home for the outstanding amount of the reverse mortgage, you are not required to make monthly principal and interest payments on the reverse mortgage. Therefore you will be freed from any monthly mortgage payment expenses.
  • The closing costs for the ongoing fees such as the Federal Housing Administration (FHA), Mortgage Insurance Premium (MIP), can also be financed by your mortgage reverse loan, making the out of your pocket minimal.
  • The loan that you acquire from the reverse mortgage is not considered taxable income; you will get your proceeds tax free. However, if you would like to know more about this you could contact “America Reverse” and get your Free No Obligation Informational Guide.
  • In general, a reverse mortgage loan will have no effect on your Social Security or Medicare benefit. However, you may wish to consult with a professional to determine the potential financial implications of obtaining a reverse mortgage loan.
  • The reverse mortgage loan is also a non-resource loan. This means that neither you nor your heirs are personally liable for any amount of the mortgage that exceeds the value of your home.
  • In case your home increases in value over the years, you may consider refinancing your reverse mortgage to access even more loan proceeds.
  • After the loan has been repaid, any remaining equity belongs to you or your heirs.

The Cons of a Reverse Mortgage

  • The loan balance that you have acquired increases over time as the interest on the loan and the fees accumulate.
  • Eligibility for need-based government programs such as Medicaid or Supplemental Security income may be affected.
  • As the home equity gets used up, fewer assets are left available for your heirs to inherit. You can still leave the home to your heirs, but you will have to repay the loan balance. Usually, the loan is paid off by selling the loan. However, in this case, this can be done by using other funds or by refinancing through a traditional mortgage.
  • The fees applicable may be higher than with a traditional mortgage.
  • The loan becomes due and must be paid when a maturity event occurs; this is in scenarios where the last surviving borrower or nonborrower spouse, meeting certain conditions has passed away. The home then is no longer the borrower’s principal residence, or in the case, the borrower vacates the home for more than 12 months. The loan will also become due in the event the property owner fails to pay property taxes or homeowner insurance, or fails to maintain the property.

If you are interested in getting more information about reverse mortgages or need assistance in getting one, fell free to contact us and get your Free No Obligation Informational Guide. At America Reverse, we pride ourselves in offering our clients with the best quality service. Contact us today! Check out what Bill Medley from the Righteous Brothers to say about reverse mortgages.

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