Pros & Cons
• Allows the homeowner to stay in the home.
• Can pay off existing mortgages on the home.
• Simple to qualify for because no minimum credit score and generally no income requirements.
• No monthly mortgage payments are due for as long as the homeowner lives in the home and meets eligibility requirements for maintenance and paying property taxes and insurance.
• The homeowner can receive payments on flexible terms:
• Credit line for emergencies
• Monthly payments
• Lump sum distribution
• Any combination of the above
o A reverse mortgage can not get “upside down” so the heirs will never be personally liable for more than the home is sold for.
o Heirs inherit the home and keep any remaining equity after the balance of the reverse mortgage is paid off.
o Loan proceeds are not taxable.
o The interest rate may be lower than traditional mortgages and home equity loans.
• The fees on a reverse mortgage are the same as a traditional FHA mortgage but are higher than a conventional mortgage because of the insurance cost. The largest costs are:
• FHA mortgage insurance
• Origination fee
• The loan balance gets larger over time and the value of the estate/inheritance may decrease over time.
• Although Social Security and Medicare are not affected, Medicaid and other need-based government assistance can be affected if too much funds are withdrawn (and not spent) in one month.
• The program is not well understood by most individuals. However, the availability of independent reverse mortgage counseling helps.