A reverse mortgage enables seniors to borrow the equity they built in their home over the years. The difference between a reverse mortgage loan and a home equity loan is that with a reverse mortgage, you don’t make the same monthly mortgage payments as you would with a home equity loan. In fact, the bank will pay you to live in your home and you don’t have a to pay a dime back until you leave your home.

The following list will help you identify most of the major pros and cons of a reverse mortgage.

Reverse mortgage pros and cons: 

• Pros:  Tax-free income.  One of the biggest advantages of a reverse mortgage is that you can use the equity from your home as tax-free income*.  If you choose the monthly payment option (payment from the lender to YOU, that is), you will have a guaranteed source of income for the rest of your life.


• Cons:  Terminology.  A lot of real estate terminology is used when referring to a reverse mortgage.  You’ll hear it from your reverse mortgage counselor, lender, financial advisors and family members.  This may all be confusing at first to understand the difference between a HECM and Home Keeper, or what the 203-b limit is for your neighborhood is, but RMhelp.org was designed and developed with seniors in mind and will always be here to answer all of your questions.


• Pros:  Home ownership.  Perhaps the best pro of a reverse mortgage is that you will continue to live in your home and be the sole owner of it.  The bank does not own your home when you take out a loan.
  


• Cons:  Fees.  The fees associated with a reverse mortgage are slightly higher than that of the traditional forward mortgage loan that you likely used to purchase your home. The good news is that you can usually pay the fees with the loan itself, which many borrowers end up doing.  Also, the Federal Truth in Lending Act requires reverse mortgage lenders to fully disclose all of the costs and terms associated with the reverse home equity loan.


• Pros:  No impact on Medicare and Social Security eligibility.  That’s right.  A reverse mortgage will not impact your eligibility on Medicare or Social Security.  It is always advisable to visit a financial advisor for the details prior to taking out the loan.

• Cons:  Property tax and insurance. Another con of a reverse mortgage is that you are responsible for still paying for your property tax and insurance.  You can always use the income from the reverse mortgage to pay for it.  If you fail to pay your property tax and/or insurance, you may be required to payback the loan earlier.


• Pros:  No income requirements.  Since a reverse mortgage pays you tax-free income, there are no income requirements when you take out a loan.  Remember, that lender pays you to live in your home!


• Cons:  Age.  Reverse mortgages are limited to those who are 62 years old or older.  Unfortunately, if you’re 61 and ½, you still will not qualify for the loan.


• Pros:  Bad credit, no problem!  Your credit score has no bearing on your eligibility for a reverse home equity loan nor affect the calculation of your loan value.  Your home value is based on your age, current interest rates and property value.

To read more about reverse mortgages, visit our reverse mortgage information center here.