Know the Pros and Cons of Reverse Mortgages
A reverse mortgage is a major financial decision.
What works for someone else might be different for you.
It's Important to understand all the benefits and drawbacks to make an informed decision.
Reverse Mortgage Pros
- No repayment if the home is your primary residence and if you stay up to date with property taxes, insurance and home repairs.
- Supplement your fixed income with reverse mortgage funds to cover your daily expenses.
- Use your reverse mortgage proceeds in any way you choose.
- No prepayment penalties if the loan is paid off early.
- Most closing costs usually can be financed into the loan, which reduces out-of-pocket costs.
- Requires pre-loan counseling to ensure you're completely informed about the reverse mortgage.
- A non-recourse mortgage loan: you or your estate will never owe more than the appraised value of the home when it becomes due and payable.
- Flexible disbursement options: lump sum, monthly term payment, line of credit or combination.
- Can be used to pay off other existing mortgages.
Reverse Mortgage Cons
- Depending on the program, the up-front fees may be higher than other types of financing.
- Reduces the amount of home equity for your heirs.
- Could affect government need-based assistance like Medicaid and SSI.
- Doesn't allow tax deductions for interest until payments are made or the loan becomes due.
- Can become due and payable in full if the terms of the loan are not met.
- May seem complicated or difficult to understand.