Reverse Mortgage Pros and Cons
Advantages of a Reverse Mortgage
No Mortgage Payments, No Risk of Default. Unlike a regular conventional mortgage loan, with a Reverse Home Mortgage you do not make mortgage payments, and your home can not be taken from you for reasons of non-payment. If you default on a home equity loan, you could lose your home. The Reverse Mortgage Lenders have no claim on your income or other assets.
No Downside. With a Reverse Mortgage you will never owe more than your home's value at the time the loan is repaid, even if the Reverse Mortgage lenders have paid you more money than the value of the home. This is a particularly interesting advantage if you secure a Reverse Mortgage and then home price declines.
Flexible Payment Options for You. You can receive the cash from Reverse Mortgage lender in the form of a lump sum, monthly payments, annuity, credit line or some combination of the above. The reverse mortgage can help pay for more than sufficient in-home companion and personal care.
Tax Free. The money from a Reverse Mortgage is typically tax free, since it's a loan when the homeowner receives the funds.
No Restrictions. The use of the funds from a Reverse Mortgage is not restricted - go traveling, get a hearing aid, purchase long term care insurance, pay for your children's college education and etc.
Easy Pre-Qualifications. There are no any credit, income or assets requirements to qualify for a Reverse Mortgage.
Home Ownership & Guaranteed Place to Live. With a Reverse Mortgage, you retain home ownership and the ability to stay in your own home for your entire life.
Federally Insured. The Home Equity Conversion Mortgages (HECM) is the only available Reverse Mortgage today. It is managed by the Department of Housing and Urban Affairs (HUD) and is insured by Federal Housing Administration (FHA). This is important since even if your Reverse Mortgage lender defaults, you'll still receive your payments.
Disadvantages of a Reverse Mortgage
Reverse Mortgage may not be for everyone. There are two main objectives in Reverse Mortgage: to keep your home and receive additional income. In order to do that you have to pledge the entire equity of your home. Everyone should carefully evaluate their financial situation, and decide if Reverse Mortgage is a right choice for them. Seek a professional advice from your Estate/Retirement Planner or Accountant.
Beware If You Are Eligible For Low-Income Assistance. If you receive low-income assistance from the Federal or State government (like Medicaid), you will want to be careful that income from a Reverse Mortgage does not disqualify you from that assistance. (NOTE: Social Security and Medicare are not impacted by a Reverse Mortgage.)
Reconsider if You Are Planning to Move. Since a Reverse Home Mortgage loan is due if your home is no longer your primary residence and the upfront closing costs are typically higher than for the other loans, it is not a good tool for those who plans to move soon to another residence.
Your Heirs Inheritance. Many people dismiss a Reverse Mortgage as a retirement option because they want to be sure their home goes to their heirs. It is true, a Reverse Mortgage decreases your home equity - affecting your estate, however, you can still leave your home to your heirs and they will have the option of keeping the home and refinancing or paying off the mortgage or selling the home if the home is worth more than the amount owed on it.
Condition of Your Home. Reverse mortgage is equity drive loan and in order to qualify for reverse mortgage, the collateral property – your home, must be in a good condition and in compliance with all applicable l rules and regulations.