The Pros and Cons of Reverse Mortgages

Reverse mortgages have been around since the 1960s, but it has only been in recent years that a great deal of attention has been directed toward the reverse mortgage. Reverse mortgages work by converting home equity into cash, either through one-time payments or monthly payments. The amount that can be borrowed varies, based on the value of the home, the homeowner’s age, loan fees and current interest rate. Many seniors, strapped for cash, find themselves wondering whether the reverse mortgage is really a good option. Before moving ahead, it is a good idea to examine both the pros as well as the cons.

The Pros of Reverse Mortgages:

There are certainly many advantages associated with reverse mortgages for seniors who are finding it difficult to meet the day to day costs associated with their golden years. A reverse mortgage makes it possible for seniors to receive a lump sum payment, monthly payments or in some cases, a combination of the two. Such payments can make it much easier to pay for day to day expenses such as groceries, medications and utility bills. In addition, the homeowner is allowed to remain in their home.
While these advantages certainly make it sound as though a reverse mortgage is the ideal solution for any senior homeowner who is facing financial difficulties, there are also some disadvantages to reverse mortgages that must be explored and understood before making a decision.
The Cons of Reverse Mortgages:

One of the main disadvantages of reverse mortgages, a drawback that many seniors are not fully aware of, relates to the large upfront costs. These costs are paid directly out of the equity of the home at the time of closing and reduce the amount of money the homeowner receives.
Homeowners considering the reverse mortgage should also know that they will continue to be responsible for homeowner’s insurance payments, home repairs and real estate taxes. In addition, homeowners may also be responsible for additional mortgage insurance in order to protect the lender against a possible decrease in the value of the property.
Furthermore, in some cases, homeowners may find that taking out a reverse mortgage could prevent them from qualifying for Medicaid due to the fact that the proceeds of the loan may be considered an asset in some areas of the country.
Many homeowners are also not aware of the fact that should they need to go to a nursing home for a prolonged but temporary period of time or if they vacate the home for any other prolonged period of time, the full loan balance along with accrued interest could come due.
While reverse mortgages have proven to be advantageous for some senior homeowners, it is a good idea for seniors to explore all of the options that are available to them before they commit to a reverse mortgage. Other possible options include refinancing and community service programs that may be able to provide needed services that can make it easier to make ends meet. Ultimately, the decision to take out a reverse mortgage is a personal decision, but it is one that should be made only when well informed.


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