Reverse Mortgage Pros and Cons
A reverse mortgage is the opposite of a standard mortgage transaction. While a traditional mortgage allows a homeowner to build up equity over time by making monthly payments, a reverse mortgage removes the equity stored in a property by making payments to the homeowner.
Just like all loan programs, reverse mortgages do not offer all borrowers equal benefits. Consider the following pros and cons to decide whether a reverse mortgage is right for you:
Reverse Mortgage Pros
- Flexible payment plans allow borrowers to choose between monthly payments, a line of credit or a lump sum
- Borrowers are never responsible for monthly mortgage payments
- A reverse mortgage loan does not become due unless the homeowner dies, moves away or sells the home, at which time the loan becomes due in full, in addition to the accumulated interest and fees
- Borrowers will continue to receive monthly income payments as long as they inhabit the property; even if the home decreases in value and the loan balance is greater than the value of the home
- The homeowner or heirs will never be responsible for owing more than the home is worth
- Qualification is simple; credit scores and income are not factors in the approval process
Reverse Mortgage Cons
- Closing costs and origination fees are typically higher than other loan products
- Eligibility for state programs such as Medicaid may change due to reverse mortgage income.
- Reverse mortgage borrowers are responsibilite for paying property taxes, insurance and other household expenses.
- The borrower must occupy the property as a primary residence; if the borrower moves away from the property, the loan becomes due.
- If the homeowner must spend an extended period of time at a hospital or nursing facility, the loan may become due unexpectedly, forcing the sale of the home.
- The complicated nature of a reverse mortgage leaves many borrowers confused, resulting in poor decisions that affect borrowers' ability to manage the loan or select the best loan product.
Do you have a question about reverse mortgages? Check our Reverse Mortgage Counseling page to see how you can receive more information.