Pros and cons

Pros of reverse mortgages

• 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.
• 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  can be affected if too much funds are withdrawn (and not spent) in one month.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.