What this article is all about:
If you are a senior homeowner considering a reverse mortgage, you may be looking to weigh the advantages and disadvantages of this distinctive loan product. A reverse mortgage has many beneficial features, as well as aspects that may not make it the best choice for everyone. If you decide a reverse mortgage can help you, it calls for thorough planning and a knowledgeable, reputable industry lender as your partner in the loan process.
To truly evaluate whether a reverse mortgage would be beneficial for your particular situation, start by considering the following pros and cons.
Pros of a Reverse Mortgage
There are a few primary reasons why senior homeowners choose a reverse mortgage loan.
Reduced financial burden
When it comes to immediate financial relief, reverse mortgages are unmatched when compared with other mortgage options. Reverse mortgages offer seniors these financial features:
If reducing your financial burden is the primary reason you’re seeking a loan, then a reverse mortgage can be very attractive.
In the past, access to your home equity was achieved mainly through the sale of your house. That solution troubled many senior homeowners who did not wish to move. With a reverse mortgage, you can access the equity in your house while continuing to enjoy all the comforts of the home you love. You retain title and ownership of your home, and may continue to live there as long as you comply with all the loan terms.
With a reverse mortgage, you can:
If a love of your home and an inclination towards the comfort of familiarity is a factor for you, a reverse mortgage could be the right loan.
Peace of mind
The most common kind of reverse mortgages, sometimes known as HECMs (Home Equity Conversion Mortgages), are backed and insured by the U.S. Department of Housing and Urban Development (HUD). This protection means a few things for your peace of mind:
The security of federal insurance makes the benefits of a reverse mortgage even more appealing.
Another feature of the reverse mortgage loan is flexibility to use the proceeds for virtually anything you desire. Many seniors have used their proceeds for such expenses as:
These are only a few of the many ways you can use your reverse mortgage proceeds. Many senior homeowners appreciate the freedom to spend the money as they see fit.
Cons of a Reverse Mortgage
When evaluating a reverse mortgage, you may wonder what the disadvantages are to this type of loan. The following are a few cons to consider.
A reverse mortgage can provide you with cash to pay for debts and expenses, but your financial obligations do not end there. You are still responsible for a few ongoing home-related costs. You may request to have a portion of your reverse mortgage proceeds set aside to cover these obligations, but do remember that you are required to continue paying for:
Your reverse mortgage may become due and payable if you fail to meet these financial obligations, requiring you to pay back the loan immediately.
The reverse mortgage was designed to help senior homeowners age in their homes. In order to maintain your loan, you are required to live in the house as your primary residence. Specifically, you may not live elsewhere for more than 12 consecutive months. This includes a second home in another location, a nursing home, a hospital, or your child’s home.
It may well be that you fully plan to age at home, but do consider the possibility that unforeseen circumstances could lead to a situation where you must live elsewhere. For instance, if you were to fall sick and need hospital care, you must ensure that it does not exceed the 12-month time limit. If you need to vacate your home for more than 12 consecutive months, the loan would become due and payable.
With a reverse mortgage, your heirs can inherit the remaining equity in your home, but only after it is sold and your reverse mortgage loan is paid back. If your home equity has not significantly increased and you have tapped a large portion of it, there may only be a small portion left for your heirs after the reverse mortgage is paid. If your heirs choose to keep the home, they must find another way to repay the loan, such as refinancing it into a conventional mortgage loan.
For many children of senior homeowners, it is more important that their parents are able to comfortably meet their financial needs, rather than struggling in order to leave an inheritance. As a potential borrower, you may want to discuss inheritance expectations with your family.
Should I Get a Reverse Mortgage?
If you are still wondering whether or not a reverse mortgage would be beneficial, ask yourself the following important questions. If you can answer “yes” to these questions, getting a reverse mortgage may be the right choice for you.
Am I able to meet all ongoing financial obligations?
The benefits of a reverse mortgage are useful if you are able to meet all ongoing financial obligations. This includes continuing to pay all property taxes, purchasing appropriate home insurances, and maintaining all basic home repairs. If you do not meet these obligations, your reverse mortgage may become due and payable earlier than you had originally planned. Speak with a reverse mortgage professional to clarify the exact financial obligations expected if you take out a reverse mortgage loan.
Am I willing and able to continue living in my home?
One stipulation of a reverse mortgage is that you must live in your home as your primary residence, or your loan may become due and payable. For many seniors, this is exactly what they desire. But for those who plan to travel for extended periods, have family who live elsewhere, or have another home in a more desirable location, this requirement may be difficult. When considering a reverse mortgage, ask yourself if you anticipate living elsewhere for more than 12 consecutive months.
Am I comfortable with the possibility of my home being sold at the end of my life?
It is feasible for you to reap the cash benefits of a reverse mortgage and not have to worry about repayment in your lifetime. This is because the reverse mortgage will normally be repaid at the end of your life once your home is sold. For many senior homeowners with no children or with children who are not interested in assuming ownership of the home, this route is not a problem. However, for some people, leaving the home as an inheritance to their children or keeping the home in the family is important.
Although your heirs do have the option to keep the home and repay the loan by refinancing to a conventional mortgage, it is common for heirs to repay the loan with the sale of the home. Be sure you are comfortable with the possibility that your heirs may choose to sell the home in order to repay the reverse mortgage.
A reverse mortgage, like other big decisions in life, requires careful consideration, thorough research, an examination of the pros and cons, and truthful answers to important questions. Once you’ve completed this thoughtful evaluation, you will be one step closer to determining if a reverse mortgage loan is the best choice for you.