Reverse Mortgage Pros and Cons
No doubt, there are plenty of benefits that make a reverse mortgage an attractive proposition for many homeowners. However, our goal here at Girrafe is to make sure you have a balanced perspective about your financial choices.
For this reason, we have compiled a list of the pros and cons of taking out a reverse mortgage loan.
Benefits of Reverse Mortgage
- Flexible eligibility requirement: You are not expected to meet some stringent requirements, such as medical or income limits, to qualify for the loan.
- Tax-free loan: The money paid to you when you take out a reverse mortgage loan is not considered as income, so it is not taxable.
- Non-recourse loan: Reverse mortgage loans are usually non-recourse. That means you cannot owe more than the current value of your home. It also means that if the market value of your property drops below the value of the outstanding debt, the lender cannot go after any of your other assets.
- Deferred payment: There is no monthly mortgage repayment on the loan until the borrower’s demise or if the borrower decides to permanently move to a different home
- Flexible payment option: Borrowers can choose how the proceeds from the reverse mortgage loan will be paid. They can decide to take the entire money at once, through monthly payment for a specified term, or for the rest of their lives on the condition that they occupy the home as their primary residence.
- Does not affect other assets: Your retirement savings account, personal checking account, and any other of your assets are unaffected by a reverse mortgage.
Drawbacks of Reverse
- The cost can add up: It might feel like free money to have a bank or lender pay money to you upfront for your home. In reality, it is a loan and comes with service fees, interests, and mortgage insurance, which are all included in the loan balance. These costs can add up over time.
- Possibility of your heirs losing the home: You may want to leave your home to your family after you pass away, but if your heirs can’t afford to pay off the loan, they won’t be able to keep the home.
- Can be affected by long-term care needs: Usually, a reverse mortgage loan is not due until you move out of your home or pass on. However, if you are unable to occupy the property for an extended period (typically 12 consecutive months) due to long-term care needs, the lender may call the loan.
- Possible hurdles for heirs after the borrower’s demise: In many cases, heirs of a deceased borrower may have to deal with several months of frustration and red tape when they want to sell the home and pay off the loan or even work out modalities to keep the property.
- Can affect Medicaid: The proceeds from a reverse mortgage can increase your monthly cash flow, and in turn, affect your ability to access state assistance programs, such as Medicaid.
- May not cover long-term care expenses: The money you get from a reserve mortgage might not be enough to cater to your long-term care expenses. If that is the case, you will end up with more debt than your equity can cover.
We strongly recommend that intending-borrowers carefully consider these potential advantages and notable risks before opting for a reverse mortgage.
Of course, you can choose to speak with our specialists if you need more clarity. Girrafe’s home equity professionals are always more than willing to provide you with expert guidance when you are trying to figure out which mortgage option is best for you.
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