Pros and Cons of Reverse Mortgage
Friday, May 20, 2011
in Blog

Pros and Cons of Reverse Mortgage

CNN Money gave brief plus and minus analysis of reverse mortgages earlier this month (see video below).

 

View the CNN Money Help Desk segment.

While the segment was insightful it was not very detailed in its analysis. So below we’ve provided you a more thorough list of reverse mortgage pros and cons.

Pros
• Convert a portion of your home equity into tax-free cashflow without having to sell your home.
• No monthly payments – the loan is paid back when you die or leave the home or another maturity event occurs.
• Use the money any way you see fit: medical bills, home repair, long-term care insurance, entertainment, vacations and more.
• No impact to eligibility for entitlement programs such as Social Security or Medicare.
• Flexibility in payments: you can receive one lump sum payout, regular payments, or a combination of both.
• No credit score and generally no income requirements.
• Use the HECM for purchase program to downsize into a less expensive home as long as it is your principal residence.
• Interest can be lower than traditional mortgages and home equity loans.

Cons
• Fees can be higher than a conventional mortgage due to the insurance costs. The two big costs are FHA mortgage insurance and the origination fee.
• Loan draws from your equity and balance gets larger over time, so the value of the estate/inheritance may decrease over time
• Requires sufficient equity in your home to qualify.

 

The response above is not intended to be anything other than the educated opinion of the author. It should not be relied upon as financial advice.

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