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Pros And Cons Of Reverse Mortgages

Reverse mortgages have helped thousands of senior citizens to have financial freedom, giving them a lot of opportunities to live a more contented life in their old age. The benefits this program provides sounds too good to be true, but if you’re ever interested to apply for a reverse mortgage, it’s always a wise move to learn both its advantages and disadvantages.

PROS

Improves Quality of Life
The money that you get out of reverse mortgages can be spent on just about anything that you choose. As a senior, you have the freedom to spend on luxuries as much as you do on necessities. This contributes to happy living. And I believe that each and every one of us has the right to live life to the fullest even in our old age. Reverse mortgages help make it possible.

You Get Tax-Free Money
The funds you receive, whether a fixed income or lump sum, are completely tax-free since the money you receive is not an income, but a loan. Do keep in mind to consult with a tax advisor to ensure that tax is not being imposed on the money that you’re receiving, just to be on the safe side.

Extensive Payment Options
You have a choice to receive the funds in the form of annuity, a lump sum, a credit line or a combination of these.

Independence
Having a reverse mortgage allows you the luxury to have full occupancy of your home, ability to maintain and modify it according to your likes, and the right to retain it.

Unlimited Funds as Long As You Live
This is the best part. Even if what your lender has given you already exceeded the cost of your equity, you are not liable to pay this exceeding amount even at the time the loan is repaid. This is particularly advantageous in the face of home price declines.

Your Humble Abode Is Guaranteed Yours
In contrast to a home equity loan, you are guaranteed ownership of your home as long as you live, even in instances of non-payment. In a home equity loan, there’s a chance that you could lose your home and assets if you become a delinquent payer.

CONS

Interest Rates
At the end of the day, the money you receive is still a loan. As such, you are liable to pay for interest fees as you continually receive funds from your lender.

“Stuck” at Home
Consider if there’s a chance that you might move to another residence. If you do, your reverse mortgage becomes null and you have to pay off the balance of your equity. Having higher upfront closing costs than other loans makes it all the more difficult.

Restrictions on Eligibility
If you have two or more houses, only the primary residence is eligible for reverse mortgages; a vacation home or a mobile home do not qualify either. Furthermore, those who are 62 and above are the only ones qualified to apply for a reverse mortgage.

Reduction of the Heirs’ Inheritance
You have to think long and hard how much is going to be left for the inheritors of the equity as the value of your equity decreases every time you get funds from the lender. If you don’t want to devalue your heirs’ inheritance, reverse mortgages might not be right for you.

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