Pros of Reverse Mortgages

  • Allows the homeowner to stay in their home
  • You continue to own your home
  • Tax Free Cash – loan proceeds or equity line draws are not taxable
  • Social Security and Medicare benefits are NOT effected
  • Cash proceeds can be used for any purpose
  • Improve cash flow – pay off existing mortgages on the home and eliminate the monthly mortgage payment.
  • Easy to Qualify For because there are no minimum credit score or income requirements
  • No monthly mortgage payments are due as long as the homeowner:
    • lives in the home
    • maintains the upkeep of the home
    • stays current on property taxes
    • maintains homeowners insurance.
  • Flexible Options, the homeowner can set up:
    • Credit line for emergencies – line limits have built in escalation features so line limits increase over time
    • Elect to receive monthly payments
    • Lump sum distribution
    • Any combination of the above
  • A reverse mortgage cannot get “upside down” so the heirs will never be personally liable for more than the home is sold for. YOU WILL NEVER OWE MORE THAN THE HOME IS WORTH.
  • Heirs inherit the home and keep any remaining equity after the balance of the reverse mortgage is paid off.
  • Heirs can either refinance the reverse mortgage balance and pay it off or sell the home to payoff the reverse mortgage balance
  • Designed and Insured by the U.S. Government
  • Mandatory HUD Counseling is required to help the homeowner understands the reverse mortgage and to assist in determining if a reverse mortgage is the best option for them.

Reverse Mortgage Cons

  • The fees on a reverse mortgage are the same as a traditional FHA mortgage but are higher than a conventional mortgage because of the insurance cost. The largest costs are:
    • FHA mortgage insurance
    • Origination fee
  • The loan balance gets larger over time and the value of the estate/inheritance may decrease over time. However, the homeowner may elect to pay some or all of the monthly interest accrued on the outstanding reverse balance
  • Although Social Security and Medicare are not affected, Medicaid and other need-based government assistance can be affected if too much funds are withdrawn (and not spent) in one month
  • The program is not well understood by most individuals. However, the availability of independent reverse mortgage counseling helps