The Pros and Cons of Reverse Mortgages

A reverse mortgage is a type of loan that allows homeowners to borrow money against the equity in their home. Unlike traditional mortgages, borrowers do not make monthly payments; instead, the loan balance is due when the last borrower dies, sells the home, or moves out permanently.

The pros of a reverse mortgage include:

• Access to cash: Borrowers can use the loan proceeds to pay off debt, make home improvements, or cover living expenses.
• No monthly payments: Borrowers are not required to make monthly payments, which can help free up cash flow for other expenses.
• Tax-free: The loan proceeds are typically not taxed as income.
• Flexibility: Borrowers can choose to receive the loan proceeds as a lump sum, line of credit, or monthly payments.
• Stay in your home: Borrowers can continue living in their home as long as they meet the loan requirements.

The cons of a reverse mortgage include:

• High fees: Reverse mortgages often come with high upfront fees, which can eat into the loan proceeds.
• Interest: The loan balance will accrue interest, which means the loan balance will grow over time.
• Lower equity: Borrowers who take out a reverse mortgage will have less equity in their home, which can impact their ability to sell or refinance the home.
• Loan requirements: Borrowers must meet certain requirements to qualify for a reverse mortgage, such as being at least 62 years old and owning the home outright or having a low mortgage balance.
• Impact on heirs: When the last borrower dies or moves out permanently, the loan balance will be due, which can impact the heirs’ ability to inherit the home.

Whether a reverse mortgage is right for you depends on your individual circumstances. It’s important to weigh the pros and cons carefully and consider your long-term goals. Consulting with a financial advisor can also help you make an informed decision.