Pros and Cons
A reverse mortgage could be a key component to your retirement planning, providing funds now and for the future — but it’s not the right choice for everyone. We want you to understand the advantages and disadvantages to help you determine if a reverse mortgage is right for you. This page is a good place to start.
Pros of a Reverse Mortgage
- It’s a loan option that can help make it easier for homeowners and homebuyers age 62 and older to live a more comfortable retirement.
- You continue to live in your home and retain title to it.
- You can choose to take your funds as a lump sum; line of credit that you can tap as needed; a steady stream of monthly advances for a set period of time, or as long as you live in the home; or a combination of these options.
- The funds from your reverse mortgage loan can be used to pay off the existing mortgage on your home. While there will still be a lien on your home for the outstanding amount of the reverse mortgage, you are not required to make monthly principal and interest payments on the reverse mortgage, so you will be freed from the monthly mortgage payment expense. (As with any home-secured loan, you will continue to be responsible for paying for property-related taxes, insurance and upkeep.)
- No monthly mortgage payments are required for as long as you live in the home and continue to meet your obligations to pay your property taxes and homeowners insurance and maintain the property.
- Closing costs and ongoing fees, such as the Federal Housing Administration (FHA) Mortgage Insurance Premium (MIP), can be financed with the reverse mortgage loan — so out-of-pocket expenses can be minimal.
- Loan proceeds are generally not considered taxable income. (Not tax advice; consult a tax professional.)
- Generally, a reverse mortgage loan will not affect Social Security or Medicare benefits. However, you may wish to consult a financial professional to determine the potential financial implications of obtaining a reverse mortgage loan.
- A reverse mortgage loan is a non-recourse loan. This means that neither your nor your heirs are personally liable for any amount of the mortgage that exceeds the value of your home.
- If your home increases in value in the future, you may consider refinancing your reverse mortgage to access even more loan proceeds.
- After the loan is repaid, any remaining equity belongs to you or your heirs.
Cons of a Reverse Mortgage
- The loan balance increases over time as interest on the loan and fees accumulate.
- As home equity is used, fewer assets are available to leave to your heirs. You can still leave the home to your heirs, but they will have to repay the loan balance. Usually, the loan is paid off by selling the home. However, this can be done using other funds or by refinancing through a traditional mortgage.
- Fees may be higher than with a traditional mortgage. (Ask us about our lower-cost options.)
- Eligibility for needs-based government programs, such as Medicaid or Supplemental Security Income (SSI), may be affected. Consult a benefits specialist.
- The loan becomes due and must be repaid when a “maturity event” occurs, such as the last surviving borrower (or non-borrowing spouse meeting certain conditions) passes away, the home is no longer the borrower’s principal residence, or the borrower vacates the property for more than 12 months. The loan will also become due if the homeowner fails to pay their property taxes or homeowners insurance, or fails to maintain the property.
Ready to Learn More?
Take the next 2 minutes and let’s get started on the path to determine if you are eligible for a reverse mortgage — let’s begin.