Reverse Mortgage Pros and Cons | Benefits & Disadvantages of Reverse Mortgage

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Reverse Mortgage Pros and Cons

No monthly payments and no repayment is required until borrower is no longer using their property as their primary residence, all parties on the deed pass away, fail to pay their property taxes and homeowners insurance.

Tax free monthly income

Payments can be used for whatever the borrower wants to spend the money on including home renovations, consolidating debt, paying for medical expenses and insurance costs, and traveling and other leisure activities

Possibly the greatest benefit of all, reverse mortgage programs may help seniors remain in their homes that they have worked so hard to pay for throughout their lives.

A reverse mortgage is what we call a non-recourse loan. This means that with a reverse mortgage you are not personally liable. The liability is only to the extent of the value of your home at time of sale, death or vacating the premises as your permanent residence. You are not liable nor are your heirs personally liable; they can either sell the home at time of your death or keep the home and pay off the remaining balance of the Reverse Mortgage.

Disadvantages of Reverse Mortgage Loans

The home is not likely to be passed on to the homeowner’s heirs.

Reverse mortgages have a relatively high closing cost – nearing 7% in some cases (or over 4X the typical closing costs of a regular mortgage). If you do not plan on staying in your home for at least 5 years a reverse mortgage generally is not recommended.

Many old people do not adequately maintain their homes, this lack of maintenance causes many homes to lose equity. If you are the type of person who will maintain your home well you still get similar fees and rates to a person who does not.

Although reverse mortgages proceeds provide tax-free income, that income may affect your ability to get other “need based” public benefits, such as Supplemental Social Security Income (SSI), Medicaid, and Medi-Cal benefits.

There are a wide array of reverse mortgage options. Adding to that complexity, some lenders are nefarious. Ensure you receive counseling and consider your options before signing off on a reverse mortgage.

Reverse mortgages provide a tool that allows seniors to tap into the equity that they have built in their homes. Plus, there are no income or credit qualifications. In today's tightening credit markets, reverse mortgage products may be one of the best and only solutions available to most retired homeowners.