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The benefits to a reverse mortgage are many, and the drawbacks are few.
Benefits and Drawbacks to Reverse Mortgages
There are many myths in today’s market fueled by stories of the reverse mortgages of the past. The most common misconception is that you will have to give up ownership of your home to the lender upon passing away, or that with time you may be forced to move from the home or start making payments on the money borrowed.
Keep the ability to leave the home and equity to your children and/or heirs
Should you pass away while living in the home you can still pass on the ownership of the home to your children and heirs. They may choose to keep the home or sell it. If they keep the home they will need pay the reverse mortgage balance in full – by way of a refinance or cash; or, if they chose to sell the home they claim all remaining equity once the reverse mortgage and its accrued interest is paid in full. In either event there is an allotted 6 month period for this process.
Freedom and flexibility to live an improved independent lifestyle
A reverse mortgage allows seniors to tap into money they’ve earned in the form of home equity, and in some cases avoiding having to depend on others for financial assistance. The money you get from the reverse mortgage is yours to use as you please. Do you have medical bills? Do you need to upgrade your home to fit physical needs? Maybe you just want to finally be able to travel and have more security – the decision is yours. With these funds you may live a better lifestyle without giving up your home ownership.
Purchase a home using a reverse mortgage
Should you choose to move now, or sell and move later you may use a reverse mortgage to purchase your new home. Once again you will have no mortgage payment as long as you live in your new home. The only stipulation is that you can only have one reverse mortgage at a time, and it must be on your primary dwelling.
No credit or income requirements to qualify
Reverse mortgages are underwritten and approved based on your age, the loan to value- percentage of equity in your home- and the location of your home. Because you have no payment requirements on the home, credit and income figures are not used to qualify or disqualify you from the loan.
Closing costs
Once you sell your home or pass away you and/or your estate retains any remaining equity after the reverse mortgage and its accrued interest is paid in full. However, should market conditions worsen, or should any event occur leaving the balance of the reverse mortgage at a greater amount than its value, neither you nor your heirs will be required to pay the shortfall. FHA insurance protects lenders from these losses and guarantees that you will never be displaced from the home, and will never have to make a regular mortgage payment on that loan. As a result, you can borrow against your home now without the risk of losing it.
Closing costs
The closing costs on reverse mortgages are generally speaking a bit higher than traditional mortgages. These costs include paying the upfront FHA insurance premium and other costs associated with getting the reverse mortgage. However with the exception of the appraisal, these closing costs are not charged out of pocket, but are reduced from the loan proceeds upon closing. The appraisal fee can usually be refunded to you at closing.