What are the Pros & Cons of a Reverse Mortgage?
A reverse mortgage can be a powerful financial tool. However, as with all mortgages, it’s important for a borrower to make an informed decision. Let’s dive into some of the benefits and caveats of reverse mortgages to help you make the best decision for your needs.
Is a Reverse Mortgage a Good Idea?
There are many ways a reverse mortgage can help those nearing retirement age. But a reverse mortgage may not be right for everyone. It’s important to consider the pros and cons of the program to make sure it’s a good fit for you.
Reverse Mortgage Pros
- Converts your home’s equity into tax-free cash
- Loan proceeds can be used for anything
- Remain in your home for as long as you’d like
- Reverse income is tax-free and usually won’t impact Social Security or Medicare benefits
- Pay off your existing mortgage and eliminate monthly mortgage payments*
- This is a non-recourse loan which means you will never owe more than the home is worth
- Government insured program
- Repayment isn’t required until you permanently move, sell, or pass away
Reverse Mortgage Cons
- Reverse mortgages come with higher costs and fees than traditional mortgages
- A reverse mortgage reduces the equity in your home
- Must continue to maintain home.
- Must pay property taxes, insurance, and home owner’s association fees
- May impact retirement benefits like Medicaid or Supplemental Security Income (SSI)
*Borrowers must maintain the property and keep current property taxes, homeowner’s insurance and HOA dues.
Reverse Mortgage Benefits
Let’s take an in-depth look at the benefits of a reverse mortgage.
Convert Your Home’s Equity into Cash
Use the Funds for Anything
Remain in Your Home
Tax Benefits
Pay Off Your Existing Mortgage
Non-Recourse Loan
Government Insured Reverse Program
Delayed Repayment
Would you prefer to talk through the advantages and disadvantages with an expert?
Our team is ready to learn about your unique situation and discuss your options with you. Reach out to us today!
Disadvantages of a Reverse Mortgage
There are a few reverse mortgage disadvantages you should also keep in mind:
Financing Costs and Fees
Potential for Reduced Equity
You Still Have Responsibilities
Retirement Benefits
Reverse Mortgage Considerations
In addition to the above, there are a few scenarios you might run into throughout the reverse mortgage process. Here are some of the most common:
- Adjustable interest rate — Interest accrues on any funds you withdraw from a reverse mortgage. Fixed interest rates grow at a steady pace, whereas adjustable interest rates could increase your debt and decrease your equity at a faster rate.
- Outliving your reverse mortgage — If you don’t plan ahead, you could spend all your reverse mortgage loan proceeds before you pass away.
Is a Reverse Mortgage Right for Me?
If you have substantial equity in your home, a reverse mortgage might be a good idea. You also might consider a reverse mortgage if:
- You anticipate remaining in your home for a long time
- You cannot afford your current lifestyle and don’t have sufficient savings, but don’t want to move
- You don’t qualify for other loan products due to credit or income restrictions
As you can see, there is a lot to consider when it comes to reverse mortgages.
If you have questions or want to discuss your options, reach out to one of our loan experts today!
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