Pros and Cons of Reverse Mortgages

One legitimate fear that seniors face is the possibility of running out of money. If you are a senior who owns a home, a Reverse Mortgage is a way to turn a portion of your home equity into cash to supplement your income.

 

Pros

  • Provides flexible disbursement options
    (e.g., lump sum, monthly or line of credit)
  • Homeowner stays in the home without making monthly mortgage payments*
  • Eliminate any existing mortgage
  • Heirs are not personally liable if payoff balance exceeds home value
  • Heirs inherit remaining home equity after paying off the Reverse Mortgage loan
  • Proceeds are tax-free**
  • Interest rates may be lower than other options

Cons

  • Value of estate inheritance may decrease over time as proceeds are spent
  • Fees are typically higher than with a traditional mortgage, such as the following:
    • Initial Federal Housing Administration (FHA) mortgage insurance premium
    • Ongoing FHA mortgage insurance premiums
    • Loan origination fee
  • Although a Reverse Mortgage loan generally does not affect eligibility for Social Security and Medicare, needs-based government programs such as Medicaid may be affected**
  • Reverse Mortgages are not well understood by many people
*The borrower must meet all loan obligations, including living in the property as the principal residence and paying property charges, including property taxes, fees, hazard insurance. The borrower must maintain the home. If the homeowner does not meet these loan obligations, then the loan will need to be repaid. This material is not from HUD or FHA and has not been approved by HUD or any government agency. Atlantic Coast Mortgage, LLC is an Equal Housing Lender | Company NMLS ID #643114 (www.nmlsconsumeraccess.org). This is an advertisement and not a commitment to lend.

** Consult your financial adviser and appropriate government agencies for any effect on taxes or government benefits.

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