Reverse Mortgage Information: Pros and Cons
There are several pros and cons to a reverse mortgage.
Reverse Mortgage Pros:
The borrower is not required to make any monthly payments.
There is a variety of methods for the homeowner to receive funds from the lender. These include a lump sum cash payment, monthly payments for a fixed period of time, monthly payments until the homeowner dies, or a line of credit.
The borrower will never owe more than the home is worth. When the home is sold, the lender will pay you or your estate the amount the sales price exceeds the balance on the reverse mortgage. If the funds from the sale are not sufficient to cover the balance, the lender is forced to absorb the difference.
A reverse mortgage is relatively easy to qualify for, relative to a conventional mortgage. There are no credit, income, or medical qualifications that a borrower is required to meet. The requirements are that you be 62 years of age or older, own and have equity in your property, occupy the property as a primary residence, and attend a counseling session by an approved counselor (which will provide you with reverse mortgage information, mainly with regards to your financial and legal obligations).
Reverse Mortgage Cons:
A major con of reverse mortgages is the high closing costs. Closing costs for reverse mortgages can be twice those for conventional mortgages.
A reverse mortgage can also impact Medicaid eligibility. If you rely on Medicaid, you should consult a trusted professional for information on the requirements you would have to satisfy in order to maintain your Medicaid eligibility.
A reverse mortgage gives you cash, up front or over time, but this cash comes from the equity in your home. As you receive more cash (and interest accrues on the amount you have borrowed), the balance on your reverse mortgage rises. This reduces the equity in your home. When the home is eventually sold or refinanced, the balance must be paid off.
For additional reverse mortgage information, please visit our FAQ page and consult the other articles on this site.