The advantages and disadvantages of a reverse mortgage has long been a discussion of many senior homeowners as to whether the rewards outweigh any of the risk. One of the biggest advantages of a reverse mortgage is that there are absolutely no monthly payments associated with the loan, this in itself makes for a strong case for the program. Of course there are many other advantages, while there are some disadvantages that are worth noting.Advantages of a Reverse Mortgage
No Monthly Mortgage Payments
You will not have any payments on a reverse mortgage loan for as long as you occupy the property as your primary residence. And the loan does not need to be paid back until you sell your property, move away permanently, or pass away.
Improved Quality of Life
Essentially, the major reason why any senior would want a reverse mortgage is because it would improve their overall quality of life. The money you receive from the equity in your home can be used for anything you desire.
Low Defaulting Risk
Since there are no monthly payments to be made to the lender, the risk of default is super low. A lender may call the loan in, if you do not pay the property taxes, insurance and any HOA fees that are due periodically.
No “Underwater” Mortgage
You can never owe more than the property is worth. Even if the lender paid you out more than the value of your home, the most you will owe is the market value of the property at the time of the sale. So if the real estate market declines and home prices fall, you would still be covered.
Payouts are Tax-Free
Since you are using the equity in your home as income, your payouts are typically tax-free.
Qualification is Easy
There are NO credit, income or asset qualifications when it comes to getting a reverse mortgage, so do not worry if you think that this will be a hurdle.
Flexible Payout Options
A reverse mortgage can be paid out to you in a lump sum, line of credit, fixed monthly payments or can be paid with a combination of any of these three mentioned.
Homeowner keeps Title
The title of the home remains in the homeowner’s name, NOT the lender or bank, contrary to popular belief.
Disadvantages of a Reverse Mortgage
Loan Balance Grows
A reverse mortgage charges interest monthly on the balance of the loan, which gets tacked on to the loan amount each month. Which means the loan balance continues to grow over time.
Closing Costs
The cost associated with a reverse mortgage is typically higher than a conventional loan because it is backed by the FHA, but the good news is you can roll any closing costs into the loan. So you will have no out of pocket expenses, except for the appraisal.
Tax Deductibility of Interest
The interest on a reverse mortgage cannot be tax deducted, until you pay off the loan or sell the home. Also, if you start making payments back to the lender, then you could possibly start deducting the interest you pay back.
Possible Reduction with Heirs Inheritance
When taking out a reverse mortgage, the balance of your mortgage grows over time, which reduces the equity in the home and possibly lowers the inheritance that your heirs will receive when you pass away. But they will be able to sell the home and the remaining equity in the home will go to them. They can also refinance the property into a traditional mortgage or pay off the reverse mortgage, if they want to keep the home.
Advantages and Disadvantages of a Reverse Mortgage
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Reviewed by Merlyn Rosell
Published :
Rating : 4.5
Published :
Rating : 4.5