NO PAYMENTS: No repayment is made until the home is sold or the owner permanently moves out or passes away.
Elimintate Current Mortgage Payments: A reverse mortgage can payoff your current mortgage and eliminate your mortgage payments.
Benefits Not Affected: Social Security Benefits and Medicare are not affected by a Reverse Mortgage.
Flexibility: The Reverse Mortgage is a tremendously flexible product that can be utilized in a variety of ways for a variety of different types of borrowers. Households who have a financial need can tailor the product to de stress their finances. Households with adequate resources might consider the product as a financial planning tool.
Stay in Your Home and Improve Your Immediate Finances: The key to a Reverse Mortgage is that it enables you to live in your home for as long as you want with absolutely no monthly mortgage payments and – in many cases – you can also get access to money to use for any purpose.
Low Risk of Default: Unlike a home equity loan, with a Reverse Home Mortgage your home can not be taken from you for reasons of non-payment – there are no payments on the loan until you permanently leave the home. However, you must continue to pay for upkeep and taxes and insurance on your home. (Furthermore, you may be subject to foreclosure if you live somewhere other than the home longer than allowed by the loan agreement.) The Reverse Mortgage Lenders have no claim on your income or other assets.
No Downside: With a Reverse Mortgage you will never owe more than your home’s value at the time the loan is repaid, even if the Reverse Mortgage lenders have paid you more money than the value of the home. This is a particularly useful advantage if you secure a Reverse Mortgage and then home price declines.
Tax Free: As a Reverse Mortgage is a loan, the money from it is typically tax-free, whether you receive it as fixed income or in a lump sum.
No Restrictions: How you use the funds from a Reverse Mortgage is up to you – go traveling, pay off existing debt, home renovations or repairs, get a hearing aid, purchase life insurance or long term care insurance, pay for your children’s college education, or simply leave it sitting for a rainy day – anything goes.
Flexible Payment Options: Depending on the type of loan you choose, you can receive the Reverse Mortgage loan money in the form of a lump sum, annuity, credit line or some combination of the above.
Home Ownership: With a Reverse Mortgage, you retain home ownership and the ability to live in your home. As such you are still required to keep up insurance, property taxes and maintenance for your home.
Guaranteed Place to Live: You can live in your home for as long as you want when you secure a Reverse Mortgage.
Federally Insured: The Home Equity Conversion Mortgages (HECM) is the most widely available Reverse Mortgage. It is managed by the Department of Housing and Urban Affairs and is federally insured. This is important since even if your Reverse Mortgage lender defaults, you’ll still receive your payments.
Can Preserve Your Wealth: Depending on your circumstances, there are a variety of ways that a Reverse Mortgage can help you preserve your wealth.
Preserve and Increase the Value of Your Home Equity: If you take your loan amount as a Home Equity Line of Credit, then this Reverse Mortgage Line of Credit grows annually. This locks in your current home value, and your reverse mortgage line of credit over time might be larger than future real estate values if the market goes down.
Higher Fees: The upfront fees (closing and insurance costs and origination fees) for a Reverse Mortgage are considered by many to be somewhat high – marginally higher than the costs charged for refinancing for example. However, the fees are financed by the Reverse Mortgage itself so nothing is paid out of pocket. Furthermore, recent changes to the HECM Reverse Mortgage reduced some of the fees. There are also options for low or no cost reverse mortgages depending on the scenario.
Accumulating Interest: There are no monthly payments on a Reverse Mortgage. As such, the loan amount – the amount you will eventually have to pay back – grows larger over time. Every month, the amount of interest you will eventually owe increases – it accumulates. However, the amount you owe on the loan will never exceed the value of the home when the loan becomes due.
Not Enough Cash Can Be Tapped: If you have a lot of home equity, you might be frustrated that a Reverse Mortgage only enables you to use some of it. The HECM loan limit is currently set at $726,350. However, your actual loan amount is determined by a calculation that uses the appraised value of your home, the amount of money you owe on the home, your age and current interest rates.
It Seems Complicated: A Reverse Mortgage is a mortgage in reverse – that can be hard to get your head around. With a traditional mortgage you borrow money up front and pay the loan down over time. A Reverse Mortgage is the opposite – you accumulate the loan over time and pay it all back when you and your spouse (if applicable) are no longer living in the home. Any equity remaining at that time belongs to you or your heirs.
Beyond Advantages and Disadvantages, Reverse Mortgages Are Not for Everyone
Beware if You are Eligible for Low-Income Assistance: If you are currently or will be eligible to receive low-income assistance from the Federal or State government (like Medicaid), you will want to be careful that proceeds from a Reverse Mortgage does not disqualify you from that assistance. (NOTE: Social Security and Medicare are not impacted by a Reverse Mortgage.)
Reconsider if You Are Planning to Move in the Near Term: Since a Reverse Home Mortgage loan is due if your home is no longer your primary residence and the up front closing costs are typically higher than other loans, it is not a good tool for those than plan to move soon to another residence.
Evaluate if You are Willing to Reduce Your Heirs Inheritance: Many people dismiss a Reverse Mortgage as a retirement option because they want to be sure their home goes to their heirs. And it is true, a Reverse Mortgage decreases your home equity – affecting your estate. However, you can still leave your home to your heirs and they will have the option of keeping the home and refinancing or paying off the mortgage or selling the home if the home is worth more than the amount owed on it..