Pros & Cons
Reverse mortgages are a relatively new idea for older adults in the United States, so it's not surprising that some skepticism surrounds them. Just as with other major financial decisions, you should fully understand the benefits and drawbacks of a reverse mortgage to make an informed decision.
While considering your options, realize that different situations require different actions. The decision a friend or relative makes might not be the best solution for you. A reverse mortgage can be viewed from several perspectives with points on both sides of the argument.
To help you understand the benefits versus drawbacks of a reverse mortgage, we have compiled a comprehensive list of pros and cons. Please keep in mind that a reverse mortgage can be just as unique as the individuals who use them. For this reason, the terms of a reverse mortgage can vary greatly depending on a number of factors and may or may not all include all of the following qualities.
- Pros of a Reverse Mortgage
- No repayment if the home is your primary residence and you stay up to date with property taxes, insurance, home repairs, and abide by all loan terms.
- Supplement your fixed income with reverse mortgage funds to cover your daily expenses.
- Use the 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.
- You and your estate will never owe more than the fair market value of the home as determined by a licensed FHA-certified appraiser when the reverse mortgage loan becomes due and payable. FHA reverse mortgage loans are non-recourse loans and are federally insured. A licensed FHA-certified appraiser will determine the home's value.
- Flexible disbursement options: lump sum, monthly long term payment, line of credit or a combination of these.
- Can be used to pay off other existing mortgages.
- Cons of a Reverse Mortgage
- 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.
- Can become due and payable in full if the terms of the loan are not met.
- May seem complicated or difficult to understand.
Read more about the facts of a reverse mortgage or continue to the next section on the reverse mortgage process.