REVERSE MORTGAGES
PROS & CONS
A reverse mortgage could be a key component to your retirement planning, providing funds now and for the future — but it’s not the right choice for everyone. We want you to understand the advantages and disadvantages of reverse mortgages to help you determine if a reverse mortgage is right for you. Below, look through all the pros and cons of reverse mortgages for retirement. If you’re a homeowner who is at least 62 years old, with equity in your home, you may be eligible for this financial solution.
PROS of a Reverse Mortgage
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A reverse mortgage is a loan option that can help make it easier for homeowners and homebuyers age 62 and older to live a more comfortable retirement.
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You continue to live in your home and retain the title to it. As with any mortgage, you must meet your loan obligations, keep current with property taxes, insurance, maintenance, and any homeowners association fees.
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You can choose to take your funds as a lump sum; line of credit that you can tap as needed; a steady stream of monthly advances for a set period of time, or as long as you live in the home; or a combination of these options. Borrowers who elect a fixed rate loan will receive a single disbursement lump sum payment. Other loan payment options are available only for adjustable rate mortgages.
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The funds from your reverse mortgage loan can be used to pay off the existing mortgage on your home. While there will still be a lien on your home for the outstanding amount of the reverse mortgage, you are not required to make monthly principal and interest payments on the reverse mortgage, so you will be freed from the monthly mortgage payment expense. As with any mortgage, you must meet your loan obligations, keep current with property taxes, insurance, and maintenance.
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No monthly mortgage payments are required for as long as you live in the home and continue to meet your obligations to pay your property taxes and homeowners insurance and maintain the property. As with any mortgage, you must meet your loan obligations, keep current with property taxes, insurance, and maintenance.
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Closing costs and ongoing fees, such as the Federal Housing Administration (FHA) Mortgage Insurance Premium (MIP), can be financed with the reverse mortgage loan — so out-of-pocket expenses can be minimal.
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Loan proceeds are generally not considered taxable income. (Not tax advice. Consult a tax professional.)
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Generally, a reverse mortgage loan will not affect Social Security or Medicare benefits. However, you may wish to consult a financial professional to determine the potential financial implications of obtaining a reverse mortgage loan.
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A reverse mortgage loan is a non-recourse loan. This means that neither your nor your heirs are personally liable for any amount of the mortgage that exceeds the value of your home when the loan is repaid.
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If your home increases in value in the future, you may be able to refinance your reverse mortgage to access even more loan proceeds.
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After the loan is repaid, any remaining home equity belongs to you or your heirs.
If you’re a homeowner who is at least 62 years old, with equity in your home, you may be eligible for this financial solution.
CONS of a Reverse Mortgage
The loan balance increases over time as interest on the loan and fees accumulate.
As home equity is used, fewer assets are available to leave to your heirs. You can still leave the home to your heirs, but they will have to repay the loan balance. Usually, the loan is paid off by selling the home. But, this can also be done using other funds or by refinancing through a traditional mortgage.
However, this can be done using other funds or by refinancing through a traditional mortgage.
Fees with a reverse mortgage may be higher than with a traditional mortgage. (Ask us about our lower-cost options.)
Eligibility for needs-based government programs, such as Medicaid or Supplemental Security Income (SSI), may be affected. Consult a benefits specialist to see if your eligibility may be comprised.
A reverse mortgage loan becomes due and must be repaid when a “maturity event” occurs, such as the last surviving borrower (or non-borrowing spouse meeting certain conditions) passes away, the home is no longer the borrower’s principal residence, or the borrower vacates the property for more than 12 months for medical reason or 6 months for non-medical reason (see CFPB guidance.) The loan will also become due if the homeowner fails to meet other loan obligations, which include paying their property taxes, insurance, homeowners association fees, and maintaining the property.
Ask About Our Reverse Mortgage Options
A reverse mortgage or a HECM loan option offers all the benefits of a traditional line of credit or forward mortgage with additional benefits. Call us today for more details.
EQUITY ELITE® REVERSE MORTGAGE
Introducing Equity Elite® reverse mortgage, an innovative new reverse mortgage loan product available exclusively from Reverse Mortgage Funding LLC (RMF) as the lender. If you're age 55 or older* and own or are planning to buy a house or condo, Equity Elite® can help you create a financial roadmap for your future starting with today. Available to borrowers as young as 55 in select states. Higher minimum age requirements may apply.*
HECM ANNUAL ADJUSTABLE RATE
Get greater protection from rising interest rates. HECM Annual is a reverse mortgage whose interest rate adjusts only once a year, with a “lifetime cap” to ensure that your rate will never go beyond a certain percentage over the initial rate. In addition, there’s an “interval cap” that guarantees that your interest rate cannot increase by more than a certain percentage annually. And to help give you financial flexibility, you have the choice of taking your funds as a lump sum, monthly advances, a line of credit or a combination of these. It’s up to you with this Home Equity Conversion Mortgage Annual Adjustable Rate.
HECM MONTHLY ADJUSTABLE RATE
The interest rate on this Home Equity Conversion Mortgage (HECM) fluctuates on a monthly basis, but it also offers more options for homeowners — including a “rate cap” that guarantees that your rate will never go up more than a certain percent over the initial rate (depending on the loan options you choose). You can select a lump sum draw, line of credit, monthly advances, or a combination of these options. For example, you might choose to take some of your cash up front and put the rest in a line of credit, so it’s available if, and when, you need it. You only accrue interest on the money that you actually take.
HECM FIXED RATE
With an interest rate that’s established at the loan closing — and fixed for the life of the loan — you’ll always know exactly how much interest is accruing on your loan. However, with a HECM Fixed Rate, you are required to take all of your money at closing in one lump sum. This may be a desirable choice if you’re using your HECM to pay off a larger existing mortgage or cover other immediate needs.
REVERSE MORTGAGE FOR PURCHASE
A reverse mortgage for purchase is a home financing solution that helps you purchase a new home that will better fit your future needs by taking out a loan on the home you are buying.