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Reverse Mortgage: Pros & Cons

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Reverse Mortgage: Pros & Cons

If you are considering a reverse mortgage loan, you probably spent a lot of time reviewing your options on whether or not this loan is right for you. In any big financial or personal decision, it is best to weigh out your pros and cons to determine what is the best option for you. We will discuss some of the negatives and positives of a reverse mortgage loan so that you are able to make the best decision for your retirement years.


1. Financial Independence.

With a reverse mortgage, one of the biggest benefits for senior borrowers is the fact that they can use their funds to become financially independent. Because the reverse mortgage proceeds can be used in any way that they choose, many borrowers use it to improve their quality of life during their retirement by using it to pay off debts, such as existing mortgages or loans, so that they no longer have to worry about making the payments every month. The borrowers could also use their loan to pay for services, such as in-home care, instead of relying on their adult children or friends to loan them the money to pay for these things. The reverse mortgage proceeds can help borrowers find financial independence and allow them to pay for their needs on their own.

2. Easy to qualify.

Reverse mortgage loans do not require a monthly payment, and as a result, there are currently no income or credit qualifications involved at this time. (Please note: In the near future, HUD will begin financial assessments as part of the qualifying process.) The basic qualifications are that you need to own the home, at least one of the borrowers must be 62 years or older, they have substantial equity on the home and have not defaulted on any government debt.

To help determine eligibility, visit this Reverse Mortgage Calculator.

3. No payments due.

Another benefit to a reverse mortgage loan is that there are no required monthly payments. Borrowers do not need to worry about paying off another loan, while worrying about current bills or debt with their reverse mortgage loan. The loan will only become due if the following takes place:

  • You no longer live on the property as a primary residence for 12 or more months consecutively.

  • The home is no longer being taken care of.

  • You are not making payments home insurance or property taxes.

  • The last borrower passes away.

4. Heirs not responsible for mortgage debt.

The loan becomes due once the last borrower leaves the residence permanently, and many borrowers are worried that they may leave a financial burden on their children. However, that is not the case; unless they want to keep the home or sell it, the heirs may also choose to do nothing with the home and return it to the bank with no penalty.

5. Non-recourse loan.

A non-recourse loan means that the borrower can never owe more than what the house is worth at the time the reverse mortgage is due. That means that when the loan is due and the home is sold, but it is less than the cost of the accrued interest and current market value, there is no penalty for the borrower or heirs to pay the additional fees. Also, if your heirs decide to walk away from the loan, they will not receive any penalties from the lender.


1. It can be expensive.

Reverse mortgage loans can be expensive due to up front costs that can come from various fees, including the HUD mandated counseling session, FHA appraisals, and the mortgage insurance fees that are there to protect both the lenders and the borrowers. Applying for a reverse mortgage loan for the short-term may not be a good idea because of the costs involved. However, most of the fees (aside from the counseling fees) can be rolled into the loan.

2. There is a chance that heirs may not inherit the home.

Depending on whether or not your heirs would like to inherit the home, this may be a problem for some people who apply for reverse mortgages. However, it is not impossible for the heirs to inherit the home or remaining equity built up in the home. If your heirs would like to inherit the home, they could look into refinancing the loan or come up with other assets to pay off the loan. If you are looking into passing the remaining equity of the property, it is possible as well, because when you apply for a reverse mortgage, you only take out 50-70% of the equity, and it is still possible for the value of the house to go up.

3. Government Assistance programs may be affected.

Government assistance programs, such as Medicaid, may be affected if too much funds are withdrawn and not spent within a certain time period. Check with a professional to see if applying for a reverse mortgage may have an impact on any government assistance that you are receiving. Fortunately, Social Security and Medicare will not be affected by your reverse mortgage loan.

4. You must plan on staying in the home for the long term.

When you apply for a reverse mortgage, one of the stipulations is that the home must be your primary residence. If you were planning to downsize your home, or you want to move closer to family, you could look into applying for a HECM for Purchase loan, which allows you to purchase a home and apply for a reverse mortgage in one transaction. If something were to happen to you, and you moved into a nursing home for 12 months consecutively or longer, the loan may become due. Because of the expenses and the fact that the residence in question must be your primary residence, it is not best to apply for the reverse mortgage if you plan on moving out of your residence within 2-3 years.

5. Must maintain obligations of reverse mortgage loan.

Reverse mortgage borrowers should be aware that there are certain obligations that they must meet. Despite the fact that the borrower will maintain title and ownership of the home, the lender requires the borrower to keeping up with property taxes and insurance, maintain the property and live in the home as primary residence. However, as with any loan, the borrower is required to keep up with property taxes and insurance, as well as maintain the home to protect the lender’s investment so the borrower should expect these requirements.

A reverse mortgage can be a great option for you to help remain independent during your senior years. To learn more about reverse mortgages and to speak with an advisor, call 1-888-808-8486.

Read Related Articles:

Reverse Mortgage Benefits

How You Can Use Your Reverse Mortgage Funds

About the Author:

I have been working in the reverse mortgage industry for 20-plus years. My goal is to provide consumers the most up-to-date and relevant information about the reverse mortgage industry and how it can affect them.

Thanks for reading!

-Alan F.

Image courtesy of [pakorn] / FreeDigitalPhotos.net

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