Reverse Mortgage Pros and Cons
If you are a senior and have financial needs, you need to consider the pros and cons of reverse mortgages before embarking on it as a financial tool to meet your needs. You may have heard about a reverse mortgage and decided to access it to meet your needs. Although it has several benefits that sound so good that you want to obtain it quickly, you need to have detailed information to know what you are going into.
There are several requirements involved in obtaining a reverse mortgage loan. And the reverse mortgage has several financial consequences. Besides, there is a particular type of houses that qualifies for the loan. Having adequate information about it will ensure making a wise decision about the mortgage.
The Pros of Reverse Mortgages
- It offers multiple payment options such as a single lump payment, a line of credit, and monthly payments.
- The borrower does not need to make the monthly mortgage payment; rather, it is the lender that pays the borrower.
- It can be used to settle existing mortgage.
- Heirs are not accountable if the payoff balance exceeds the home equity.
- After settling the reverse mortgage loan, the remaining equity (if any remains) goes to the heirs.
- The income from the reverse mortgage is tax-free.
- The interest rates may be lower than other options.
- There is no limitation on how the proceeds from the reverse mortgage can be used. The money can be utilized for any purpose.
- Homeowners get to retain the title to their home until they move from the house, sell their home, pass on, or reach the end of the loan term.
- The value of the home is used to determine eligibility and not the income of the homeowner.
- Social Security and Medicare benefits are not affected by reverse mortgages.
Cons of Reverse Mortgages
- The equity in the home or the home’s value will reduce over time as payments are received.
- Reverse mortgages have higher fees than the traditional mortgage in areas such as mortgage insurance premiums, loan origination fees, and closing costs.
- Although the eligibility for Medicare and Social Security are not affected by a reverse mortgage, Medicaid can be severely affected by it.
- Most people do not understand a reverse mortgage very well before considering it as a financial tool.
- The borrower may not be leaving any inheritance for the heirs after the term of a reverse mortgage loan.
- Until the duration of the loan is reached, the homeowner is responsible for the payment of property taxes, insurance premium, and maintenance of the home.
- Failure to pay the compulsory homeowner’s insurance, property taxes, and keep the home in good condition can make the loan due.
- Before qualifying for a reverse mortgage loan, the borrower will attend compulsory consumer education lessons.
However, it advised that seniors have an adequate understanding of reverse mortgages and consider the pros and cons before adopting it as a tool to finance their needs.
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