Pros and Cons of Reverse Mortgage

A reverse mortgage converts home equity into cash in several different ways, ranging from monthly payments to a one-time payout, or a combination of both. The amount allowed to borrow varies according to the value of the home, current interest rate, loan fees, and your age. However, there are pros and cons to a reverse mortgage. Every candidate for a reverse mortgage should consider both the benefits and the drawbacks before jumping in.

The Cons

• Upfront costs are very high

• Borrower is responsible for mortgage insurance

• Depending on which state you live in, a reverse mortgage could prove a barrier to qualifying for Medicaid

• Limited to borrower’s 62 years old or older.

• Reduces the home equity amount you leave to your children or grandchildren

• A reverse mortgage is more expensive and binding than establishing a home equity line of credit.

The Pros

• Choose to receive your money in one lump sum, regular monthly installments, or draw from a line of credit at your discretion.

• Allow you to remain in your home

• You will not owe more that the value of your home at the time of repayment, no matter your balance.

• You do not have to own your home to qualify for a reverse mortgage

• Reverse mortgage will not impact your Social Security or Medicare

• You do not have to worry about making a monthly payment as you would if you were to borrow money through a home equity line of credit

• Your credit score, savings, and income are not used in the loan calculation. Instead, your age, health, home value, and home equity are taken into consideration.