Let’s Talk Pros and Cons

WHAT ARE THE PROS OF A REVERSE MORTGAGE?

Repayment of your reverse mortgage is deferred – With a reverse mortgage loan, you receive a defined cash amount and eliminate your monthly mortgage payments. Plus, your reverse mortgage loan does not have to be repaid until you sell the house, move out or pass away.

Your loan proceeds are tax free – The money you receive is 100% tax free.

You select how you wish to receive your funds – You can choose a plan that best meets your retirement goals. The proceeds from a reverse mortgage can be taken in a lump sum and the remaining amount paid out over time in predictable amounts.

How you spend your money is up to you – There are virtually no restrictions or requirements on how you can spend your proceeds.

The uses for reverse mortgages keep expanding – Paying off large bills, consolidating debt, improving the home for comfort and safety, protecting investments, covering long-term health care needs, starting a grandchild’s college fund, and creating a stronger safety net are just some of the responsible and strategic ways older adults are putting their reverse mortgages to work.

Reverse Mortgages are non-recourse loans – Neither you nor your heirs will ever owe more than your home is worth. No assets, other than the home itself needs to be used to pay off your loan balance.

WHAT ARE THE CONS OF A REVERSE MORTGAGE?

A home with a reverse mortgage could go into default – As with a traditional mortgage, if you fail to keep up the home, pay your property taxes and homeowners insurance, or fail to comply with your loan terms, your loan could go into default. If you see this as a concern, you could set up an escrow account, to ensure you can meet these obligations.

You have to live in the home as your primary residence – You can’t use a reverse mortgage for a vacation or investment home. Also, if you live outside your home beyond a year, resulting, perhaps, from an extended nursing home stay or other life event, your loan could become due.

You’re drawing down your equity –  A reverse mortgage will likely draw down some of the equity you have built up in your home. But if you’re using your home equity to provide you with more financial freedom and flexibility for a better retirement, then you may decide that this trade-off is well worth it. Your home also could be increasing in value, offsetting a growing balance.

You may leave less for your heirs – Your heirs could actually see this as a positive, if your home equity allows you to live safely, comfortably and independently, giving them peace of mind that you have planned well and can continue to meet your financial needs without their assistance.

View the pros and cons in the context of how they could impact your retirement needs and goals. Be honest and realistic. Are you someone who is never late paying your property taxes? Are your long-term health prospects good?

As you move forward with your retirement planning, why not start your own pros and cons reverse mortgage list. In the end, your list of reverse mortgage pros and cons could clearly point out the retirement road you need to take. Cons that initially concerned you may no longer be an issue now that you fully understand them.