Pros of Reverse Mortgages:
- Eliminates any current mortgage payment. Making daily living expenses easier to handle.
- Homeowner can continue to stay in home for the rest of their lives. The reverse mortgage never expires, thus the homeowner(s) never have to sell the house, or move out, unless they choose to.
- Fees of reverse mortgages have been reduced.
- No monthly payments must be made on reverse mortgages.
- Tax free cash can be taken by tapping the equity in the home. By taking a lump sum, credit line, monthly payments, or a combination of the three.
- Over time reverse mortgages can become upside down. Meaning the outstanding reverse mortgage balance becomes higher than the value of the house. However, upon death of the homeowner(s) enrolled in the reverse mortgage, the heirs to the property will not be responsible, or held liable for any shortage of loan repayment upon sale of the home.
- Interest rates on reverse mortgages are often lower than traditional mortgages.
- At the time of the sale of the house, any remaining equity after repayment of the reverse mortgage, is payable to the reverse mortgage holders, if alive, or to the remaining heirs of the homeowner(s).
- Reverse mortgage counseling by an independent third party is required in order to enroll in a reverse mortgage. This is required to make sure that seniors considering enrolling in a reverse mortgage truly understand it, have all the facts, and are not being misinformed or mislead by the lender.
- Recent reverse mortgage program changes have made the program more viable and sustainable.
- The senior can comfortably age in the home and the neighborhood they may be attached to.
- Lots of myths about reverse mortgages still exist, making them very confusing for many seniors.
- Although fees have recently been reduced, because the program is insured by the FHA, an upfront mortgage insurance premium is rolled into the reverse mortgage.
- If the homeowner(s) choose to make no payments on the reverse mortgage, (they can if they choose to) the loan balance grows, decreasing equity over time.
- Seniors who are on Medicaid can have their benefits reduced, if they withdraw too much money when enrolling in a reverse mortgage. You must be careful that any loan proceeds you retain do not exceed the monthly limits allowed for (SSI) and Medicaid, which could be impacted by your HECM payments.
- The homeowner(s) can lose their home if they do not reasonably maintain it, fail to keep up their homeowners insurance, or property taxes on the home.
Cons of Reverse Mortgages:
The reverse mortgage program has a 90% satisfaction rate among its enrollees. However, there has been a reported 10% default rate on reverse mortgages. 10% of seniors who have enrolled in reverse mortgages have loss their homes. This is due to defaulting on at least one of the three requirements, maintaining the home, paying the property taxes, and paying the homeowners insurance. Recent changes have been made to the reverse mortgage program, and more are forthcoming, to address this issue. Credit profiles will now be reviewed, and a financial assessment will now be done on all enrollees when determining eligibility.