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Reverse Mortgage Pros and Cons
Pros of reverse mortgages
- Provides monthly or lump sum money
- Homeowner stays in the home without making monthly mortgage payments
- May eliminates existing mortgages
- Simple qualification because minimum credit scoreand income are not considered
- Heirs are not personally liable if payoff balance exceeds home value
- Heirs inherit remaining equity after paying off the reverse mortgage
- Proceeds are untaxed
- Interest rates may be lower than other options
Cons of reverse mortgages
- Value of estate inheritance may decreases over time as proceeds are spent
- Sometimes fees are higher than a traditional mortgage
- Initial FHA mortgage insurance premium (2% of property value)
- Ongoing FHA mortgage insurance (0.5% of reverse mortgage balance)
- Loan origination fee may be higher than that of traditional mortgages
- Although Social Security and Medicare eligibility are not affected by a reverse mortgage, need-based government programs such as Medicaid can be affected if the amount of funds withdrawn from a reverse mortgage exceed the monthly income limits.
- Reverse mortgages are not well understood by many people.
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