| The PROS of Reverse Mortgages:
• Tax free income insured by the Federal Government which continues as long as your home is your primary residence.
• You can change your plan at any time from a line of credit, cash out, monthly checks, or a combination (depending on what remains).
• The remaining Line of credit grows each month at half percent over the current interest rate.
• Unlike an equity loan there is no income, credit, or health qualification.
• A good option for seniors who wish to remain in familiar surroundings and in the same community where they've lived for years.
• Moving from one's home can cause emotional turmoil for many senior homeowners. Memories were made in your "home sweet home", and proximity to loved ones may seem a much better option.
• Reverse Mortgages can satisfy your existing mortgage or debts, though your debts are transferred to your Reverse Mortgage balance. (Your home does not have to be free and clear to qualify.)
• There are no out of pocket costs other than the appraisal fee and HUD counseling. Some Reverse Mortgage counseling organizations do not charge a fee depending on which HUD counseling agency you choose.
• You can remain in your home as long as you wish no matter what is owed the lender. You can never be forced out of your home as long as your real estate taxes and homeowner's insurance are paid and as long as you maintain your home in adequate condition.
• You can refinance your Reverse Mortgage over and over again as long as there is equity in your home.
• You can never owe more than your home is worth upon the sale of the property. However, if you choose to pay off your debt and remain in your home or, upon your passing, should your heirs decide to pay the debt and keep the home, repayment of the full mortgage debt will be due.
• None of your assets can be attached to repay the Reverse Mortgage debt. Additionally, the debt does not pass to your heirs or to your estate. The home stands for the debt.
• Reverse Mortgages have many safeguards: capped interest rates, a limitation on fees, HUD counseling, asset protection (non-recourse loan), no maturity date (cannot become due during a borrower's lifetime).
• Your heirs may be able to claim the interest from your Reverse Mortgage on their income taxes after your passing. (Be sure to consult your tax advisor.)
• Reverse mortgages have been used as a financial tool helping heirs avoid some of the real estate tax.
| | The CONS of Reverse Mortgages:
• A Reverse Mortgage has all the typical closing costs one finds with a typical mortgage. However, Reverse Mortgages can be more costly. There is FHA mortgage insurance and additional closing costs.
• A Reverse Mortgage can reduce your children's and grandchildren's inheritance. A Reverse Mortgage is a rising debt loan since no mortgage payments are being made, the opposite of a typical mortgage where equity increases as mortgage payments are made.
• Selling your home can often provide a greater return on your investment than a Reverse Mortgage.
• Moving from your residence in less than five years makes a Reverse Mortgage impractical. It does not make good sense to use a Reverse Mortgage short term.
• If you fail to pay your real estate taxes or homeowner's insurance or neglect to maintain your home, the lender may require repayment. (Reverse Mortgage lenders, however, will work with you to cure the default.)
• If you leave your primary residence for a period exceeding 12 consecutive months, the Reverse Mortgage will become due. (Nursing homes, assisted living, etc.)
• If your heirs wish to benefit from your home after your passing, they can sell the property and keep the remaining equity or they can get their own mortgage. However, in keeping the home the full balance will be due.
• Medicaid may be affected, and you may not qualify for benefits unless you spend down your Reverse Mortgage proceeds each and every month. (Check with your attorney and Medicaid to discuss Medicaid's parameters.)
When NOT to get a Reverse Mortgage:
• An equity loan may be a cheaper way of getting cash out of your home as closing costs are lower.
• If your primary goal is fixing up your home and a community loan is adequate, a Reverse Mortgage is not your best option.
• If you are ill and assisted living or a nursing home is imminent, do not choose a Reverse Mortgage.
• If your financial situation will preclude you from keeping up maintenance, taxes, or insurance on your home, forego a Reverse Mortgage.
• When family members or trusted advisors suggest that a Reverse Mortgage is not a good option, consider their suggestions and keep an open mind.
• If your children invite you to move in with them, this may be the perfect alternative to staying in your own home.
• A homeowner whose residence has a business utilizing more than 25% of the total living space will not qualify for an FHA Reverse Mortgage.
Reverse Mortgage Counseling Info-click here | | |
