Reverse Mortgage: The Pros and Cons

February 9, 2022

If you are interested in tapping into your home equity, but you’re not sure how to go about it, a reverse mortgage may be the answer. As with most important decisions, there are pros and cons to consider when deciding whether a reverse mortgage loan is right for you.

Calculate Your Eligibility

A reverse mortgage loan, also known as a Home Equity Conversion Mortgage (HECM), is Federal Housing Administration (FHA) insured loan1 available to homeowners who are 62 years and older and allows borrowers to take part of their home’s equity and turn it into cash, monthly payments, or a line of credit.

The Pros

  • You can cover convert a portion of your home equity into tax-free cash flow without having to sell your home.
  • There are no monthly payments. The loan is paid back when the last borrower permanently leaves, or another maturity event occurs.
  • The money any way you want, medical bills, home renovations/repairs, or put aside for further use.
  • No impact on eligibility for entitlement programs such as Social Security or Medicare.
  • Flexible payment options. You can receive one lump sum payout, regular payments, or a combination of both.
  • Credit score isn’t used to determine eligibility and there are generally no income requirements.
  • The HECM for Purchase program can be utilized to downsize into a less expensive home as long as it is your principal residence.
  • The Interest rate can be lower than traditional mortgages and home equity loans.

The Cons         

  • The fees for a reverse mortgage can be higher than a conventional mortgage due to the origination fee and the required FHA mortgage insurance.
  • The loan draws from your equity and balance owed increases over time and the value of the estate/inheritance may decrease over time.
  • Borrowers must have sufficient equity in their home to qualify.

If you are interested in learning more about whether a reverse mortgage might be right for you, call (800) 976-6211 to speak with a licensed loan advisor or try our free Reverse Mortgage Calculator.

1 As required by the Federal Housing Administration (FHA), you will be charged an initial mortgage insurance premium (MIP) at closing and, over the life of the loan, you will be charged an annual MIP based on the loan balance.