Reverse Mortgage Information

Pros

• No monthly payments are due for as long as the homeowner lives in the home
• Pays off existing mortgages on the home
• Credit score and income are not considered
• Proceeds are not taxable

Offers security:

• Allows the homeowner to stay in the home permanently
• With minimal requirements, the lender can never take your home
• No change to the title – lender receives only a mortgage lien
• The extra money may help you to maintain your independence and security

You have control:

• You decide how much equity you will use or leave to your heirs
• You control how much, or how little, money you take out of your equity
• Leave the vast majority or very little of your equity
• Flexible terms for receiving payments are available
• Heirs inherit the home and keep the remaining equity after the balance of the reverse mortgage is paid off

Fair and safe way to access you equity:

• Government designed, highly regulated, and extensively disclosed mortgage program
• Independent counseling is always required before the loan process is complete
• The lender is repaid only what it is owed
• Can not get “upside down”, so the heirs will never owe more than the home is worth.
• The interest rate is generally lower than traditional mortgages and home equity loans
• Conservative lending limits generally prevent you from using all of your home equity

Cons

• The money you get from a reverse mortgage is not free money. When a reverse mortgage lender or bank lends you money that is secured by a mortgage on your home, they are entitled to be repaid what they lent you, plus the interest on it.

• If you get a reverse mortgage, you will have less equity in your home than if you did not get one.  If you take out money from your equity, then you’re going to have less of it in the future.  This is not necessarily a bad thing, it is just a trade-off.

• You usually need a lot of equity to qualify for a reverse mortgage.  Reverse mortgage lenders do not offer you the full amount that your house is worth. They need to leave plenty of room for interest to be added to the principle balance of the loan.

• A reverse mortgage may not be the all-encompassing answer to your financial goals. You do not have unlimited amounts of home equity and a reverse mortgage loan program does have limitations.  A reverse mortgage may provide all the money that you will need for the rest of your life but it may just help supplement the income you currently have.

• 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.

• 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.