A Reverse Mortgage Is Not For Everyone! Here are some pros and cons of HECM reverse mortgages in the United States.
Reverse Mortgage Pros
- You are able to access the cash in your home and use it to pay for anything you like now
- You will not have to make any mortgage payments
- Flexible disbursement of the funds with different options
- No loan repayments are required as long as you continue to live in the home
- You will remain the home owner and on title.
- All the money you receive from a reverse mortgage is tax-free
- The younger spouse continues to live in the home if the older spouse dies with no payments required
- Heirs still inherit the remaining home equity after paying off the reverse mortgage loan
- Interest rates on a reverse mortgage are much lower than other options such as car loans or credit card debt.
- Reverse mortgages are fully insured and regulated by the United States Federal Government’s Federal Housing Administration (FHA). This protects borrowers in the unlikely event of the loan amount exceeding the value of the home which may occur with a significant real estate crash or if the younger spouse outlives the loan.
- The fees for reverse mortgages are regulated by the HUD (US Department of Housing & Urban Development) with limitations and may be paid out of the loan proceeds. The only expenses you will likely incur are the appraisal fee and counseling fee which should total less than $500.
- You may choose to repay the reverse mortgage loan at any time without incurring any additional costs or penalties.
- You may be able to delay and increase your social security benefits.
Reverse Mortgage Cons
- The federal government strictly regulates HECM reverse mortgages. Borrowers must qualify and meet the HECM requirements.
- You must have sufficient home equity to qualify for a reverse mortgage
- The value of your estates inheritance may decrease over time as the money from the HECM is spent
- You will still need to pay the Federal Housing Administration (FHA) mortgage insurance premium, appraisal fee, counseling fee, loan origination fee and other closing costs. However, your upfront costs will likely be less than $500 since the remaining fees may be paid from the reverse mortgage loan. HECM Reverse Mortgages are FHA insured and regulated by the US Federal Governments Department of Housing and Urban Development (HUD) with strict government-mandated caps on the origination fees and percentages.
- Borrowers must undergo an independent, third-party counseling session to ensure they fully understand the terms of the reverse mortgage and their obligations. (i.e. continuing to pay their property taxes, home owners insurance and maintain the home, plus any HOA fees if applicable)
- Medicaid and other asset-based benefits may possibly be affected. Social Security, Medicare or Pension benefits will NOT be affected as a result of a reverse mortgage.
- You must continue to live in the home as your primary residence and not sell the home; otherwise the reverse mortgage loan will need to be repaid.
- Only your primary residence may qualify for a HECM reverse mortgage. Vacations homes and investment homes are not eligible for a reverse mortgage.