A reverse mortgage can assist in providing a tax-free cash flow to eligible homeowners 62 years of age or older. Also, it is a way to provide financial independence for seniors. The ability to age longer in your own home is a comfort in retirement. However, reverse mortgages can also mean expensive credit and too much debt.
Pros and Cons of Reverse Mortgage
A reverse mortgage is a special type of home loan that lets you convert a portion of the equity in your home into cash. It’s important that seniors learn about the benefits and drawbacks so they can decide if a reverse mortgage is right for them.
Reverse Mortgage Pros
- Reverse mortgage can give the homeowner cash or a way to pay off debt and make no payments.No monthly payments are due for as long as the homeowner lives in the home. The reverse mortgage pays off any existing mortgages on the home. The borrower’s credit score and income are not considered and proceeds are not taxable.
- It offers security. A reverse mortgage allows the homeowner to stay in the home permanently with minimal requirements. The extra money may help the borrower maintain their independence and security.
- This financial product keeps control with the homeowner. The borrower can control how much or how little they take out of their equity and flexible terms for receiving payments are available. They may also decide how much equity they leave to their heirs. The heirs may inherit the home and keep the remaining equity after the balance of the reverse mortgage is paid off.
- It’s a fair and safe way to access equity. Reverse mortgages are government designed, highly regulated, and an extensively disclosed mortgage program. The loan can’t get “upside down,” so the heirs will never owe more than the home is worth. The interest rate is generally lower than traditional mortgages and home equity loans, and the lender is repaid on what is owed.
Reverse Mortgage Cons
- The loan balance can increase over time.
- Fees are most likely higher than a regular mortgage.
- There are fewer assets to leave to heirs. Seniors can leave their home to their heirs, but the heirs must pay the loan’s balance.
- It could go into default or foreclosure if the borrower fails to pay property taxes, doesn’t continue home insurance or fails to maintain the home.
- The loan is due if the borrower moves out of the house for any reason.
If you are looking for homebuyer education, speak with a certified counselor at ACCC today. Call 800-769-3571.