Reverse Mortgage Pros and Cons

A reverse mortgage works well for some people. To help make a more informed decision, we have provided some basic information about reverse mortgages.

A Reverse Mortgage Loan may provide the additional retirement financial income that helps you live the type of retirement lifestyle you desire, you can pay off medical bills, make needed improvements to homes or just provide some extra cash. It is important to weigh the risks and benefits before making any decision that will impact your finances, we have provided potential pros and cons of a getting a reverse mortgage loan.

Many homeowners ages 62 and older with enough equity in their homes may be eligible for a Reverse Mortgage Loan or also known as a Home Equity Conversion Mortgage (HECM). According to HUD, people choose a reverse mortgage loan because of the benefits that fit with their lifestyle needs.

Funds can be distributed in one lump sum payment or as monthly payments and homeowners remain in the comfort of their own home without making monthly mortgage payments.

Reverse mortgage funds are not taxed as income, you must continue to pay required yearly property taxes, however, it is always best to consult your tax or financial advisor. In addition, if the home is sold to pay off the loan, your family is not personally liable if the loan balance exceeds the value of the home.  Any remaining equity in your home will go to your family/heirs.

Potential drawbacks to consider, the balance of the reverse mortgage will increase over time and the value of the estate inheritance may decrease as funds are used. Fees, including the loan origination fee, may be higher than with traditional mortgages. Reverse mortgage fees also include the Initial FHA Mortgage Insurance Premium, as well as an annual  Mortgage Insurance Premium (MIP).

Needs-based government programs may be affected by reverse mortgage loan proceeds.  Therefore, you are encouraged to consult your trusted financial advisor and appropriate government agencies for any effect on taxes or government benefits.

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Pros to consider

Funds can be distributed in one lump-sum payment or monthly payments. 

Stay in the home without making monthly mortgage payments.

Proceeds are not taxed as income, yearly property taxes must still be made. 

Your family/ heirs are not personally liable if payoff balance exceeds home value.

Family or heirs will inherit any remaining equity after the reverse mortgage balance is paid off.

Cons to consider

The loan balance increases over time

The fee will be higher than a traditional mortgage

Value of estate inheritance may decrease over time as proceeds are spent

Loan origination fee will be higher than traditional mortgages origination fees

Social Security and Medicare eligibility will not be affected by a reverse mortgage income, be aware that other needs-based government programs such as Medicaid may be affected.