Reverse Mortgage Pros and Cons

Reverse Mortgage Pros and Cons

Reverse mortgages, just like any other home loan, have pros and cons. Understanding the pros and cons of reverse mortgages can help you make a more informed decision and even avoid potential issues in the future.  

The reverse mortgage program was created to help seniors have more money during their retirement years so they can afford their monthly bills. A reverse mortgage provides you with cash by borrowing against your home’s equity. 

Reverse mortgages have also grown in popularity since the economic recession. During the recession, retirement accounts were lower than expected due to a poor economy and declining stock markets. Reverse mortgages gave individuals over age 62 a way to meet their monthly payment obligations. 

Interested to see if a reverse mortgage is right for you and if you qualify? Fill out our quick 1-minute form to have a Mortgage Advisor contact you. 

Reverse Mortgage Pros

  • You can stay in your home, even if your income is declining
  • The qualification process for a reverse mortgage is much faster and easier than with a conventional loan
  • If you have a lower income, there are flexible credit requirements
    • This works as long as you own the home or the last surviving borrower lives in it and maintains the property taxes and insurance. 
  • You can receive payments in a variety of forms such as a line of credit, monthly payments, in a lump sum, or in any combination of the three that best suits your needs.
  • You get to eliminate your monthly mortgage payments and receive money back instead 
    • This is done by drawing against the equity in your home. This program can also be used to move into a smaller home, paying off your current mortgage and creating a nest egg for a smaller, more affordable property, while still giving you money every month.
  • The heirs to your estate will never be held liable for any excess costs and they will still be able to inherit the property. 
    • After they’ve inherited the home, they can either sell it and keep the remaining equity or take out a traditional mortgage to pay towards the remaining principal on the home. Currently, any money made from the loan are not considered income. Also, the interest rates for these loans are often lower than conventional mortgages and home equity lines of credit.

Reverse Mortgage Cons

  • These loans tend to have higher fees than other forms of retirement income
  • The fees can be higher than a conventional loan but should be similar to an FHA loan
  • Not everyone will qualify: You need to be at least 62-years-old and have lived in your home for a considerable amount of time
  • You will still be responsible for paying for property taxes and insurance
  • When the time comes for the loan to be repaid, the balance cannot exceed the value of the property
  • Reverse mortgage loans require FHA insurance, which can add to the overall expense
  • Origination fees tend to be higher
  • Accrued interest on the money you’ve taken from the loan balance can decrease the overall equity, leaving little to no money for your heirs when the time comes
  • While Medicare and Social Security are not affected by the income from a reverse mortgage, Medicaid and other forms of government assistance can be affected, making you ineligible. Funds kept for more than a month from a reverse mortgage are considered as assets by Medicaid SSI, which can affect eligibility. Because of this, it’s recommended you only take out as much money as you need to cover your expenses each month.
  • You will be required to participate in counseling sessions, so you are fully aware of all of the implications associated with the loan. They do this to mitigate the risks of all parties involved and to make sure there are no misunderstandings or complications. 

If you qualify, a reverse mortgage may be a great solution to your financial situation. Before you make a decision, however, it’s important to understand the pros and cons of reverse mortgages first so you can be informed and are aware of the advantages and disadvantages and know whether or not a reverse mortgage is a right fit for you.  

Do you need to find a reverse mortgage lender? Our mortgage specialists can help find the best lender for your situation. Fill out our quick 1-minute form to have a Mortgage Advisor contact you.