Reverse Mortgage Pros and Cons: Understanding This Unique Loan

What are the reverse mortgage pros and cons and why should you care?

If you pay attention to the news, you’ve probably seen some headlines about reverse mortgages. Ever wondered what they’re all about? We’ve got the scoop on reverse mortgage pros and cons as well as how they work and who might benefit from them.

What are reverse mortgages?

Reverse mortgages are a type of home loan that can be a smart and safe way for homeowners to access an important retirement asset: home equity. Reverse mortgages have been known to help homeowners age 62 and older (typically retirees) live more comfortably in their own home. They can help these homeowners be more financially prepared for the future and provide flexibility that’s not available with other types of mortgages.

If an older homeowner is looking for extra cash without depleting their assets, a reverse mortgage may be a good solution.

Why get a reverse mortgage?

If an older homeowner is looking for extra cash without depleting their assets, a reverse mortgage may be a good solution. By tapping into their home equity, a reverse mortgage can help fund living expenses when their retirement income starts running low.
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For some, a reverse mortgage may help them avoid the need to sell the family home and downsize or move into a retirement home. Plus, these mortgages don’t require repayment until after the borrower’s death. That is, assuming certain conditions continue to be satisfied. Conditions like continued ownership and occupancy of the home and payment of taxes and insurance.

How does it work?

With a reverse mortgage, the borrower is not required to make monthly principal and interest payments to the lender. Instead, the lender pays them, and this money can come in a variety of ways. It may be one lump sum, equal monthly payments for a period of time, a line of credit, or some other method. Even a combination of methods. It just depends on the lender.

Regardless of a retiree’s financial situation or what happens in the industry, a reverse mortgage lender cannot change the terms of a reverse mortgage. They also cannot demand the loan’s repayment unless the borrower dies, the borrower no longer occupies the home as their principal residence, the borrower fails to pay taxes or insurance, or some other default event.

Drawbacks and controversy

Recently, there’s been controversy over changes to the Home Equity Conversion Mortgage (HECM) program, the FHA’s reverse mortgage program. In addition, some critics argue that reverse mortgages encourage older homeowners to spend recklessly, which can deplete their assets. However, with the help of a financial advisor, homeowners can make a plan to spend their equity wisely.

Years ago, reverse mortgages received negative publicity over reported scam efforts. Now, borrowers can get reverse mortgage counseling to help them safely avoid being taken advantage of.
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Want more info about reverse mortgages?

If you want to learn more about reverse mortgages, give us a call! One of our loan officers would be happy to talk to you and give you more information.

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About the Author

Laura is one of our blog authors. Currently living in Charm City, she's a Great Lakes native who likes salsa dancing, brews a mean cup of Joe, and reads the Chicago Manual of Style for fun. As a young first-time home buyer, Laura likes writing educational pieces that dispel mortgage myths and give helpful hints about what the home buying process is really like.