Pros and Cons of Reverse Mortgage  

Pros of Reverse MortgagesAllows the homeowner to stay in the home.Can pay off existing mortgages on the home.Simple to qualify for because no minimum credit score and generally no income requirements.No monthly mortgage payments are due for as long as the homeowner lives in the home and meets eligibility requirements for maintenance and paying property taxes and insurance.The homeowner receives payments on flexible terms:Credit line for emergenciesMonthly paymentsLump sum distributionAny combination of the aboveA reverse mortgage can not get “upside down” so the heirs will never be personally liable for more than the home is sold for.Heirs inherit the home and keep any remaining equity after the balance of the reverse mortgage is paid off.Loan proceeds are not taxable.The interest rate may be lower than traditional mortgages and home equity loans.

Reverse Mortgage ConsThe 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 insuranceOrigination feeThe loan balance gets larger over time and the value of the estate/inheritance may decrease over time.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can be affected if too much funds are withdrawn (and not spent) in one month.The program is not well understood by most individuals.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.

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