Allows the homeowner to stay in the home permanently.
Pays off existing mortgages on the home.
Simple to qualify for because credit score and income are not considered.
About half of reverse mortgages are used
to pay off an existing mortgage.
No monthly payments are due for as long as the homeowner lives in the home.
The homeowner receives payments on flexible terms:
Credit line for emergencies
Monthly income
Lump sum distribution
Any combination of the above
A reverse mortgage can not get "upside down" so the heirs will never owe more than the home is worth.
Heirs inherit the home and keep the remaining equity after the balance of the reverse mortgage is paid off.
Proceeds are not taxable.
The interest rate is lower than traditional mortgages and home equity loans.
Reverse mortgage cons
The fees on a reverse mortgage are the same as a traditional FHA mortgage but are higher than a conventional mortgage because of the insurance cost. The largest costs are:
FHA mortgage insurance
Origination fee
Although Social Security and Medicare are not affected, Medicaid and other need-based government assistance
can be affected if too much funds are withdrawn (and not spent) in one month.
The program is not well understood by most individuals. However, the availability of independent reverse mortgage counseling helps.
