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Do advantages of a reverse mortgage outnumber its disadvantages?

Reverse mortgage helps you to increase your income after retirement, thus positively affecting the quality of your life. If you have enough equity in your home and you’re over 62 years of age, then you can cash out your home equity without even having to worry about paying off the loan. Moreover, you can choose how to get the cash – whether to opt for a single payment or apply for a credit-line account, which enables you to borrow money as and when required.

5 Advantages of taking out a reverse mortgage

Apart from the benefits already mentioned, there are several other advantages of taking out a reverse mortgage loan. The advantages are given below.

1. Tax free income: You don’t have to pay any tax on the money received from a reverse mortgage loan.

2. Use the money as you want: The homeowners can utilize the money the way they want. You can purchase long term care insurance, pay your children’s college education or go for a trip with your family. There are absolutely no restrictions on how you want to utilize the borrowed amount.

3. Easy to qualify: It is quite easy to qualify for a reverse mortgage as the lenders don’t consider credit history and income requirements to offer the home loan.

4. No monthly mortgage payments: You don’t have to repay your reverse mortgage loan until you move out of your home or sell it off.

5. Continue staying in your home: The borrower can continue staying in the property and retain home ownership. There is no change in the title; the lender only receives a lien on the property. Moreover, the homeowner can stay on the property as long as he/she lives even if the outstanding loan and interest increases to an extent when the amount exceeds the value of the property.

You can also take out a FHA insured Home Equity Conversion Mortgage (HECM) that is managed by the Department of Housing and Urban Affairs. This enables you to receive the payments even if your lender defaults on making the required payments.

3 Disadvantages of obtaining a reverse mortgage

Though this home loan helps a senior person to use the cash as the way he/she wants, a reverse mortgage is not without any disadvantages. Go through the following lines to know about 3 disadvantages of reverse mortgages.

1. Comparatively expensive: The closing costs associated with a reverse mortgage loan are comparatively higher than that of a conventional mortgage. In addition, the interest rates can be at times higher that increase your interest, which in turn, raise the outstanding debt amount.

2. Rising debt, falling equity: This is a type of home loan where the debt amount continues to rise thus reducing the equity in the property. The equity gets reduced further if the property doesn’t appreciate in value.

3. Limitations on age/property qualifications: A borrower can only take out a reverse mortgage against the primary residence. A resort property or a second home doesn’t qualify for this loan. Furthermore, you can only take out this loan when you’re over 62 years of age.

A borrower needs to repay the reverse mortgage at the end of the loan term or when the last surviving borrower dies or sells the property. However, if the heirs want to stay in the property, then they have to either refinance the loan or pay off the mortgage. The heirs can also sell the property and utilize the cash if the home value is more than the amount owed on it.

Useful resources :

Mortage Refinancing and Modifications – help and advice on mortgage refinancing and loan modifications.

Reverse Mortgage Info : Information about Reverse Mortgage and Reverse Mortgage Quote.This site enhance your knowledge about reverse mortgage.