Darin and Christina Cunningham | Re/Max Elite
278 Franklin Road Suite 190 | Brentwood, TN 37027
Office: 615.661.4400 | Fax: 615.661.4115
Christina: 615.394.4168 | Darin: 615.456.4086



The Pros and Cons of Reverse Mortgages

Reverse mortgages may be a good fit for some people, but they may not be a good idea for everyone. Before signing up for a reverse mortgage, it’s good to get a thorough understanding of what a reverse mortgage is and the pros and cons of getting one.

So, what exactly is a reverse mortgage? A reverse mortgage is a type of home loan that allows you to convert part of the equity in your house into hard cash.

With normal mortgages, borrowers are the ones who make monthly payments to pay the debt. With the reverse mortgage, the lender pays the borrower and the debt increases. The loan isn’t settled until the borrower decides to sell the home, moves out or dies. The loan is then repaid by selling the home.

Pros

  •         It helps may help senior homeowners aged 62 and older to live a decent life after retirement.
  •         You get to retain the title to your home and live in it as well. You have to take care of all other fees such as the home association, maintenance, insurance, and taxes.
  •         You can use the funds from the reverse mortgage to pay the current mortgage on your home.
  •         You are no longer required to make monthly payments or the principal interest payments on the existing mortgage if you have one.
  •         The reverse mortgage funds can be taken as a lump sum or any other line of credit that you can easily tap as needed. You can also get a stable income of monthly advances for a specific period of time.
  •         No monthly mortgage payments are required as long as you live in the home and pay all the required obligations.
  •         The reverse mortgage can finance closing costs and other ongoing fees minimizing out of pocket expenses.
  •         The loan doesn’t affect any Social Security or Medicare benefits.
  •         If the home increases in value, you can refinance the reverse mortgage to access more loan proceeds.

Cons

  •         The interest on the loan and fees accumulate over time meaning the loan balance also increases.
  •         The home equity is used meaning you have fewer assets to leave to your heirs. If you leave the home to your heirs, they will have to repay the loan balance usually by selling the home.
  •         Higher fees as compared to a traditional mortgage.
  •         When a maturity event occurs, the reverse mortgage loan becomes due and has to be repaid.
  •         If the homeowner is out of the house for more than 12 months due to medical reasons or 6 months due to non-medical reasons, this is considered to be a maturity event and the loan has to be repaid.

Reverse mortgages are not for everyone. Before considering one, consult a financial professional to get someone on one advice. Also, consult a tax specialist and a benefits specialist to make sure your retirement benefits aren’t affected by the loan. It can be a great option, but not everyone is eligible and it might not be a fit for everyone.

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