Reverse Mortgage Pros and Cons

The upsides of reverse mortgages

• You can choose how to receive the money: fixed monthly payment, lump sum, line of credit or some combination of these options.
• Income from reverse mortgage generally does not affect Social Security or Medicare benefits.
• If you “outlive the loan,” meaning you receive more in payments than your home is worth, you will never owe more than the value of the home, according to the Federal Trade Commission, or FTC.
• Loan advances are generally not taxable.
• Most loans do not have income requirements.
• Homeowner retains title to home.
• No payments are due until last surviving borrower dies, sells home or no longer lives in home as primary residence.
• HECM Reverse Mortgage programs allow borrower to live in nursing home or other medical facility for up to 12 months before loan becomes due.
• After the home is sold and the loan and fees are paid to the lender, any remaining equity in the home belongs to you or your heirs.

The downsides of reverse mortgages

• Reverse mortgage proceeds could impact Medicaid eligibility.
• Borrowers must be at least 62 years old to qualify.
• Lenders generally charge origination fees and other closing costs.
• Lenders require free debt counseling prior to loan application.
• Lenders may charge servicing fees during term of the mortgage.
• Debt increases over time as interest is charged to outstanding balance of loan.
• Most loans have variable interest rates tied to short-term indexes, such as the one-year Treasury bill or LIBOR. Fixed Rate Loans are available.
• As home equity is used up, fewer assets are available to leave to heirs.
• Interest is not tax deductible until the loan is paid off.
• Borrowers are responsible for paying taxes, homeowners insurance, maintenance costs and other expenses. If they don’t, the loan may become due.