Reverse Mortgages: The Good, The Bad and The Ugly
Written by Silver Sage Magazine
The Good:
- Allows the homeowner to stay in the home as long as you keep the loan in good standing and as long as you live (or can) in the home.
- You or your heirs will never owe more than the home is worth.
- Can pay off existing mortgages on the home.
- Easy to qualify for because generally no income requirements and no minimum credit score required.
- No monthly mortgage payments are required.
- The homeowner receives payments on flexible terms such as credit line, lump sum distribution, monthly payments or a combination.
- The interest rate may be lower than traditional mortgages and home equity loans.
- Loan proceeds are not taxable.
- If your heirs inherit the home, they may keep any remaining equity (after the balance of the reverse mortgage is paid off).
The Bad:
- Fees on a reverse mortgage are higher than a conventional mortgage.
- Loan balance gets larger over time while the value of the estate/inheritance may decrease over time.
- Need-based government assistance (Medicaid) can be affected if a surplus of funds is withdrawn in a month.
- The program is often misunderstood.
The Ugly:
- Can eat away at valuable home equity.
- If you need to move out to an assisted living facility, nursing home or the like; the loan becomes prematurely due.
- Risk of foreclosure if you don’t keep the house in good repair or fall behind on any payments (taxes and insurance).
