Reverse Mortgages - Pros and Cons

Especially in stressed financial times, people on fixed incomes seek supplemental income for a variety of reasons. When it comes to considering reverse mortgages, pros and cons should be weighed before signing the mortgage papers.

A reverse mortgage has a simple principle; money is borrowed against the equity in the home. The difference is that there are no monthly repayments; in fact, there are no repayments at all as long as the homeowner uses the house as their primary residence.  So the homeowner can realize a hefty sum of money, usually in monthly increments, without giving up the ownership of the house for as long as they live and/or use the house as their main home. 

There are a few hitches to the deal, however.  One, the homeowner must be at least 62 years of age. Second, the home must be either fully paid off or with just a small balance left on the original mortgage. Third, counseling sessions must be attended to ensure that the borrower is completely cognizant of the implications of the loan.

Many people will realize great benefits while others could forfeit in the case of reverse mortgages; pros and cons that must be recognized to determine how it will affect each individual before going forth with the mortgage are as follow:

PROS OF REVERSE MORTGAGE:

• No monthly payments are due as long as the homeowner lives, and is in the home.
• Even after the homeowner dies, no more than the value of the home will be due even if the homeowner had received payments in excess of the  home’s worth.
• Flexible monetary terms; the homeowner can receive monthly payments, a lump sum or pull from a line of credit.
• Most senior citizens can qualify; neither income nor credit scores as used in the qualification process.

CONS OF REVERSE MORTGAGE:

• Eligibility for Medicaid or other programs with the State or Federal government could be affected by the receipt of the reverse  mortgage money.
• The closing costs for a reverse mortgage are much higher than that of a traditional mortgage; origination fees could amount to  double that of standard home loans.
• There are still costs associated with the house that the owner must bear; real estate taxes, homeowner’s insurance, normal home  repairs and mortgage insurance.
• An extended stay in a nursing home due to a surgery or injury could mean the loss of the house, even if the homeowner is later  healthy enough to return. 

Before deciding upon reverse mortgages, pros and cons of the consequences must be weighed to determine if it truly does meet the needs of the individual.