The PROS of Reverse Mortgages:
Tax free income insured by the Federal Government which continues as long as your home is your primary residence. Freedom from stress and worry.
Change your plan at any time from a line of credit, cash out, monthly checks, or a combination (depending on what remains.) The remaining Line of credit grows each month at half percent over the current interest rate.
Unlike an equity loan there is no income, credit, or health qualification though a credit report is required on all loans. (Debt to income ratio does apply to purchases.)
A great option for seniors wanting to remain in familiar surroundings and in the same community where they've lived for years.
Moving from one's home can cause emotional turmoil and stress for many senior homeowners. Memories were made in your "home sweet home", and proximity to loved ones may seem a much better option.
Reverse Mortgages can satisfy existing mortgages or other debt which is a plus. (Note: These debts will be transferred to your Reverse Mortgage and interest will accrue.)
You can remain in your home as long as you wish no matter what is owed the lender. You can never be forced out of your home as long as your real estate taxes and homeowner's insurance are paid and as long as you maintain your home.
You can refinance your Reverse Mortgage again and again as long as there is equity in your home.
If you sell the property you can never owe more than your home is worth. Upon your passing, however, should your heirs decide to keep the home, the lender will require repayment of the full mortgage debt.
None of your assets can be attached to repay the Reverse Mortgage debt. Additionally, the debt does not pass to your heirs or your estate. The home stands for the debt. (This is called a non-recourse loan with no deficiency judgment.)
Reverse Mortgages have safeguards: capped interest rates, a limitation on fees, HUD counseling, asset protection (non-recourse loan), no maturity date (cannot become due during a borrower's lifetime (goes to age 150.
Your heirs may be able to claim the interest from your Reverse Mortgage on their income taxes.
Use proceeds for long term care or other expenses such as repairs on your home or even a vacation or new car purchase.
The CONS of Reverse Mortgages:
A Reverse Mortgage has all the typical closing costs one finds with a typical FHA mortgage. It has FHA mortgage insurance added, but with the HECM Saver Reverse the up front FHA insurance fee is drastically reduced.
A Reverse Mortgage can reduce your children's and grandchildren's inheritance. A Reverse Mortgage is a rising debt loan since no mortgage payments are being made, the opposite of a typical mortgage where equity increases as mortgage payments are made.
Selling your home can often provide a greater return on your investment than a Reverse Mortgage.
Moving from your residence in less than five years makes a Reverse Mortgage impractical. It does not make good sense to use a Reverse Mortgage short term.
If you fail to pay your real estate taxes or homeowner's insurance or neglect to maintain your home, the lender may require repayment. (Reverse Mortgage lenders, however, will work with you to cure the default.)
If you leave your primary residence for a period exceeding 12 consecutive months, the Reverse Mortgage will become due. (Nursing homes, assisted living, etc.)
If your heirs wish to benefit from your home after your passing, they can sell the property and keep the remaining equity or they can get their own mortgage. However, in keeping the home the full balance will be due.
Medicaid may be affected, and you may not qualify for benefits unless you spend down your Reverse Mortgage proceeds each and every month. (Check with your attorney and Medicaid to discuss Medicaid's parameters.)
When NOT to get a Reverse Mortgage:
An equity loan (if you qualify) may be a cheaper way of getting cash out of your home as closing costs may be lower.
If your primary goal is fixing up your home and a community loan provides adequate funds, a Reverse Mortgage is not your best option.
If you are ill and assisted living or a nursing home is imminent, do not choose a Reverse Mortgage.
If your financial situation will preclude you from paying real estate taxes, insurance, and maintaining your home, forego a Reverse Mortgage.
If your children invite you to live in their home and spend your remaining years with them, this may be a better alternative than staying in your home.