PROS & CONS OF
Reverse Mortgage Pros And Cons
A reverse mortgage seems a good idea to ensure a financially secure retirement and positively enhance the quality of life. While there are numerous benefits to this financial product, there are some drawbacks you must be aware of.
Read this guide to reverse mortgage pros and cons so that you can make an informed decision while avoiding mistakes when planning to get this product.
PROS OF REVERSE MORTGAGE
1. No Monthly Payments
With a reverse mortgage, you can live for life in your home without paying monthly mortgage payments. The repayment of the loan balance is made when you leave your primary home forever based on when you obtained the mortgage. Since borrowers don’t make monthly payments with this product, qualifying for this loan is easier than for a traditional mortgage.
Also, there is no need of much income to qualify for a reverse mortgage. Borrower and lender should just confirm that you can easily afford your home.
2. Flexible Payment Option
Take your reverse mortgage proceeding in a single lump sum, line of credit, or monthly payment for the term of life.
3. Use Funds For Anything You Want
A reverse mortgage is a highly flexible product. These loan funds are considered similar to any other loans. These are not considered income. So you can utilize the money in any desired way. Borrowers with financial needs often tailor it to de-stress their post-retirement finances. Households with adequate resource consider it as a great financial planning tool.
4. Assured Line Of Credit
For the duration, you own funds on your line of credit, and you fulfill all your obligations, the HUD keeps funds available to you. Banks often freeze the HELOC lines of credit without notice to the borrower. It never happens with the HECM line of credit.
Regardless of how long you occupy your home, payments you take on a reverse mortgage or now matter what the real estate values are, you and your heirs never have to repay more than your home’s value.
5. Buy New Home Outright With Home Purchase Feature
A reverse mortgage not only helps to refinance your existing mortgage but also lets you purchase a new home. The Home Purchase feature works for those:
• Who want to purchase a home
• Who need to get home as per their needs
• Who want to reduce their expenditure
6. Federally Insured
A reverse mortgage is synonymously used for federally-insured Home Equity Conversion Mortgage (HECM). It is backed by the Department of Housing and Urban Affairs. This is essential because even if your Reverse Mortgage lender comes out to be a defaulter, you’ll keep obtaining your reverse mortgage proceeds.
Secure Your Future
Did you know that senior housing wealth reaches record $7.14 Trillon? 1
Learn how you can use a reverse mortgage for a better retirement.
CONS OF REVERSE MORTGAGE
You must keep in mind that a reverse mortgage may not be for everyone. When applying for reverse mortgages, consider the following:
1. Accumulating Loan Balance
Loan Balance on reverse mortgage increases over time as the interest as well as fees keep adding on.
2. Fewer Assets Passed To Heirs
As home equity is used, your successors get a very few assets to own. Though you can leave the home to heirs, they have to repay the loan balance, which is often paid off by selling the home.
However, they can pay it using other funds or refinancing through a forward mortgage.
3. It May Involve Higher Fees
If the borrower is using the government insured reverse mortgage, he or she has to make both upfront payment as well as mortgage insurance premiums for renewal purpose annually. Even though you don’t pay at your own, it involves substantial costs.
The insurance ensures all parties involved in a reverse mortgage against possible risks. It also ensures that borrowers and their inheritors will not owe loan repayment more than the home’s value.
The borrower receives no above the HUD maximum loan lending limit of $725,650. In this case, you may tap into jumbo reverse mortgages, such as proprietary or private reverse mortgage. These types of reverse mortgages are used for higher valued properties. However, interest rates for jumbo reverse mortgages can be extremely high. There are low-cost options as well.
4. May Affect Other Basic Financing Options
If a borrower 62 or older draws funds from their loan and allow their liquid balance to be very high, s/he may face difficulty with qualifying for needs-based programs
5. Protection For Spouse
As per the revised guidelines of HUD in 2015, borrower’s spouse below 62 years of age during the closing time is protected as an “eligible non-borrowing spouse.” Spouses can also occupy the house for life. They are responsible for maintaining the home reasonably manner, obliged for paying the property taxes as well as insurance.
Borrowers and spouses should remember that eligible spouses are not the borrowers, and they can’t access the line of credit funds available after the death of the eligible borrower.
You're in good hands with Brett!
Want to learn more about how Brett Stumm could improve your retirement?
¹ Senior Housing Wealth Reaches Record $7.14 Trillion. NRMLA. Historical RMMI.