Pros & Cons

Pros

•   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.

Cons

•    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Medicare are not affected, Medicaid and other need-based government assistance can be affected if too much funds are withdrawn (and not spent) in one month.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.