Reverse Mortgage Pros and Cons

Pros of Reverse Mortgages

  • Provides flexible disbursement options (i.e. monthly or line of credit)
  • Homeowner stays in the home without making monthly mortgage payments*
  • Eliminate any existing mortgage
  • Heirs are not personally liable if payoff balance exceeds home value
  • Heirs inherit remaining home equity after paying off the reverse mortgage loan
  • Proceeds are tax-free**
  • Interest rates may be lower than other options

Cons of Reverse Mortgages

  • Value of estate inheritance may decrease over time as proceeds are spent
  • Fees are typically higher than with a traditional mortgage, such as the following:
    • Initial Federal Housing Administration (FHA) mortgage insurance premium
    • Ongoing FHA mortgage insurance premiums
    • Loan origination fee
  • Although a reverse mortgage loan generally does not affect eligibility for Social Security and Medicare, needs-based government programs such as Medicaid may be affected**
  • Reverse mortgages are not well understood by many people

 

*You must live in the home as your primary residence, continue to pay required property taxes, homeowners insurance and maintain the home according to Federal Housing Administration requirements. Failure to meet these requirements can trigger a loan default that results in foreclosure.

**Consult your financial advisor and appropriate government agencies for any effect on taxes or government benefits.