Skip to main content

Pros and Cons of a Reverse Mortgage

A reverse mortgage is a financial product that allows a homeowner to convert home equity into cash.

happy older couple

A reverse mortgage is an option available to homeowners who are at least 62 years old. A reverse mortgage offers them a good way to finance their retirement. They can use this money to cover healthcare expenses, pay for home improvement, or pay off an existing mortgage. A reverse mortgage provides a line of credit or fixed monthly payments without the need to repay a loan each month. However, before choosing this option, it is important to understand the pros and cons. What can a reverse mortgage do for you?

How a Reverse Mortgage Works

In a traditional mortgage, you borrow money from a lender and repay it in monthly payments while you gradually build up equity in your home. On the other hand, in a reverse mortgage, a lender pays you a monthly sum and gradually purchases the equity in your home. You retain the title to the property and it acts as a security for the loan. The loan is repaid when the owner passes away, sells the home, or the home is no longer the primary residence.

Pros of a Reverse Mortgage

  • You choose how you receive the cash, for example, a regular monthly installment, a single lump sum, a line of credit, or a combination of any of these methods.
  • Irrespective of how you receive the cash, you do not make payments as long as you live in the home as your principal residence.
  • There is no minimum income to qualify.
  • According to the Federal Trade Commission, if you receive more cash than what your home is actually worth, you will not owe anything more than the value of your home.
  • Cash advances are non-taxable.
  • You remain the owner of the home.
  • Cash advances have no affect on Medicare or social security benefits.
  • After lender fees are paid and the home is sold, the owner receives any equity left in the home.

Cons of a Reverse Mortgage

  • You need to be 62 years or older more to qualify.
  • You must go through compulsory mortgage counseling and you will have to pay for it.
  • Closing costs and loan origination fees can be quite high.
  • You may have to pay monthly servicing fees for the term of the loan.
  • Reverse mortgages are usually variable interest rate loans.
  • The debt increases with time as interest is added to the balance.
  • There are limits on the amount you can borrow during the first year.
  • There are limits on the mortgage you can qualify for.
  • If you fail to pay homeowner’s insurance, taxes, or any other expenses, the loan can become due.
  • With a reverse mortgage, you lose the equity in your home and you are left with fewer assets.

The decision on whether you should apply for a reverse mortgage should be made after considering the pros and cons carefully. Better Rate Mortgage can help you weigh all the factors before committing to a reverse mortgage. If the terms of a reverse mortgage does not fit with your needs, we can help you with other options. Call Better Rate Mortgage at (314) 361-9979.

Open the door to more.

Get Started Today

Whether you’re purchasing your first home or taking cash out to make your dream home even dreamier, the door is open. Welcome to Better Rate Mortgage.

Apply Now
Couple laughing and holding keys to new home