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Reverse Mortgages Pros & Cons - Don't Make a Costly Mistake

Updated on July 5, 2011

Is a Reverse Mortgage Right for You?

Understanding reverse mortgages pros & cons is extremely important before making a decision. Reverse mortgages were designed to help older Americans who own their homes by paying cash for the equity in their homes. Elderly people often need cash and reverse mortgages is one way for them to "cash in" on the investment they've made by owning their home. 

But while this sounds good, there are two sides to every story and you need to consider both the pros and cons before making a decision about reverse mortgages.

Reverse Mortgages Pros & Cons


The Pros of Reverse Mortgages

  • The homeowner never makes monthly payments.
  • The homeowner keeps the title to the home.
  • The homeowner receives monthly income while he or she lives in it as a primary residence and can choose how they receive the money - lump sum, fixed monthly income, or line of credit.
  • The homeowner never owes more than the house is worth even if you outlive your loan and receive more in payments than the house is worth.
  • The homeowner's heirs never owe more than the house is worth.
  • It's easy to qualify for reverse mortgages. Income and credit scores aren’t part of the process.Reverse mortgage income doesn’t affect Medicare or social security benefits.
  • After the home is sold and the loan and fees are paid to the lender, remaining equity belongs to the homeowner or the homeowner's heirs.

The Cons of Reverse Mortgages

  • High closing costs. Many times the originations fees are double the rate for conventional mortgages.
  • Reverse mortgages generally have adjustable interest rates.
  • Homeowner is responsible for real estate taxes, homeowner's insurance and repairs.
  • Homeowner must be 62-years-old or older to qualify.
  • Interest is charged to the outstanding balance of the loan increasing homeowner's debt.
  • Interest isn't tax deductible until the loan is paid off.

If you're considering a reverse mortgage, continue to educate yourself before making a decision. Before seniors can apply for reverse mortgages, they are required to attend counseling to ensure they understand everything that is involved with a reverse mortgage. Getting a reverse mortgage is a complex loan process and it's important that you understand reverse mortgage pros & cons before making decisions.


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