What Are The Advantages And Drawbacks Of A Reverse Mortgage?

2011-10-10-1139-000(64).jpgBefore determining whether or not a reverse mortgage is right for you, it’s important to consider the advantages and drawbacks, or the benefits and risks, of a reverse mortgage. By knowing the good as well as the bad when it comes to a reverse mortgage, you’ll be better equipped to decide if a reverse mortgage is right for you.

Advantages of Reverse Mortgages:

    • Cash when you need it – Many older Americans are cash-strapped although they have a good deal of equity in their homes, since their homes are fully or mostly paid off.   Reverse mortgages allow these individuals to convert that equity into usable cash that can help to increase income on a regular basis to meet daily living expenses or that can be used for the purchase of larger-ticket items, such as a new car, a vacation, a child’s wedding, home improvements or just about anything desired.
    • No restrictions – With the exception of a single-purpose reverse mortgage, the money obtained with a reverse mortgage can be used however a borrower sees fit.
    • Payouts are not taxable and do not affect benefits – There is no risk of losing Social Security or Medicare benefits due to the payments received from a reverse mortgage, however as certain “needs based” programs may be affected borrowers should check with their providers. Additionally, the added income is not taxable.
    • No repayments while living in the home – With a reverse mortgage, no repayment of the loan needs to be made while a person is living in the home. Payment is only due once the last remaining borrower has vacated the home, however you need to keep current on property taxes, insurance and maintenance.
    • No need to worry about a home’s value in the future – As long as the home is sold to repay the loan once the borrower is no longer living there, no additional payment is required even if the sale of the home results in less than what is owed on the loan. However, if the estate wishes to keep the home and pays off the loan through another means, then full repayment is required, no matter what the current market value of the home may be.

Drawbacks of Reverse Mortgages:

      • Higher upfront costs – The costs associated with reverse mortgages are generally higher than traditional mortgages or home equity loans. The upfront costs are often paid from the home’s equity, reducing the amount of cash available to the homeowner.
      • Rising interest – Interest continually accrues on balances that increase over time as you continue to receive more income from monthly payments or due to money being taken out against your line of credit. This rising debt and interest reduces the equity in your home.
      • Borrower’s responsibilities – The borrower is still responsible for paying all taxes and homeowners insurance on the home. Additionally, repairs and maintenance must be performed as needed on the home or the borrower may have to give up the property to the lender if adequate care is not taken of the home.

To discuss the pros and cons of reverse mortgages please call  1-800-827-1794

This material is not from HUD or FHA and has not been approved by HUD or a government agency.

As with any loan there are risks associated with a reverse mortgage.  The right to remain in your home is contingent on complying with reverse mortgage loan terms and it is possible to lose your home if you do not comply with the terms of the reverse mortgage such as keeping current with property taxes, insurance and maintenance costs.