Reverse Mortgage Pros and Cons

October 24, 2015 | By admin | Filed in: Uncategorized.

The benefits, disadvantages, pros, and cons of reverse mortgages

Reverse mortgages have been hyped up, but they are in fact an effective financial tool. Like all things in life, Reverse mortgages have pros and cons, benefits/pitfalls, and advantages/disadvantages.

Reverse mortgages a way of getting money from the equity in your home. Unless you’re 62 or over, in order to get cash from your house, you have to sell your house, or use it as collateral for a loan which has to get repaid in monthly installments. On the other hand, one of the pros of reverse mortgages, is that reverse mortgages are a type of loan where the loan amount isn’t repaid as long as the owner of the house is still living inside it. This loan is only repaid when the borrower passes away, or permanently moves out of the house, or if the house is sold. Another pro of reverse mortgages, is that the loan repayment options are flexible: lump sum, monthly payments, or line of credit. There are multiple forms of reverse mortgages, HECM, home equity conversion mortgages and private proprietary reverse mortgages. HECM are the most popular, and are backed by the HUD.

With a reverse mortgage, the older the borrower, the more money the borrower can get. Seniors have to be at least 62 years, but the older they are the more money they can get.

Some Reverse Mortgage Cons

If you take out an HECM reverse mortgage, you have to talk to a counselor, designated by the federal government. If you aren’t careful with reverse mortgages, they can negatively impact your long term planning.  When going through a consultation, you should talk to the counselor about the cons, disadvantages, and pitfalls of reverse mortgages in your own personal case – in addition to the costs and fees.

Some specific cons and disadvantages of reverse mortgages

-It can affect your eligibility for other types of home loans/mortgages

-It will affect the inheritance of your heirs

-The borrower can lose his/her eligibility for medicaid and supplementary security income.

Medicaid and SSI consider loan cash advances as liquid assets when they are kept beyond a month. As a result of this, borrowers will find themselves ineligible for State and Federal benefit programs.

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