The Pros and Cons of Reverse Mortgages

reverse mortgages
A reverse mortgage can be an excellent choice for retirees to generate extra income from the equity they’ve built up in their home over the years. It’s not a good option for everyone, so it’s always wise to consider the pros and cons of reverse mortgages before making a decision:
Pros of a Reverse Mortgage
• Funds from a reverse mortgage aren’t considered taxable income (meaning they won’t influence Social Security of Medicare)
• They are loans without any monthly payments (as long as the borrowers continue to reside in the home)—they are paid back when the house is sold, vacated, or when the borrowers are deceased.
• It can provide funding for a single purpose, such as home repairs.
• It can be used as supplemental income in retirement
Cons of a Reverse Mortgage
• High fees, including an “origination fee” which can be as much as $6,000. Other servicing and miscellaneous fees can also be added on, depending on the specific reverse mortgage.
• You must be over 62 to qualify for most reverse mortgages.
• Mortgage Insurance Premium (MIP)—an extra cost tacked on that is basically “mortgage insurance” for your reverse mortgage. If your reverse mortgage is for less than 60% of your home’s value, the MIP will be .5 percent of your home’s value. For reverse mortgages of more than 60%, it jumps to 2.5%.
• If your home loses value, then the amount it sells for may not be enough to cover the reverse mortgage, leaving you (or your family) responsible for whatever is left over.
A reverse mortgage isn’t for everyone. Other types of loans (such as a home equity loan) may be better in certain circumstances. Before taking out a reverse mortgage on your home, it’s important to talk to a mortgage specialist or qualified financial planner.
The right home insurance coverage can protect your home and your assets from a wide variety of calamities, as well as some of the risks associated with a reverse mortgage. To learn more about your home insurance options, talk to an independent agent today by calling 775.358.5554.