Reverse Mortgage Pros and Cons

You have heard about a product which can assist you stay independent by using the current equity in your home but what is the truth of this program? There are many truths regarding the Home Equity Conversion Mortgage (HECM) program or reverse mortgage. The Housing and Urban Development (HUD) division and Federal Housing Authority (FHA), have worked for several years to ensure mature Americans, like you, who are 62 years of age and older are well-informed when making the decision to apply and accept a reverse mortgage.

As with any lending program there are the positives and the negatives which if not rendered properly can leave a potential borrower to make an uninformed decision. The positives and negatives of the reverse mortgage program are listed below:

You as the borrower do not have give up your title or leave your home in order to participate in the reverse mortgage program. One of the purposes of the reverse mortgage program is to ensure that you are able to stay in your home.

You can use a reverse mortgage to payoff your current mortgage. You can also use your remaining reverse mortgage loan proceeds as you desire. You do not have to sign up for any additional saving plans, speak with an estate planner or any additional requirements.

The only considerations a lender will make when determining the amount of your reverse mortgage loan is your current home value, the current interest rate and your age. Your income and credit will never be considered.

Unlike a conventional mortgage loan or a refinance loan you do not make a payment on your reverse mortgage as long as your home remains your primary residence. You only begin repayment on your reverse mortgage when you no longer occupy the home as your primary residence.

You have flexible payment options. You can either chose to have monthly payments, receive a lump sum, use a line of credit, or a combination of any of these.

Proceeds from a reverse mortgage are not considered income. Therefore you would not be taxed on this.

Your Medicare and Social Security benefits will not be impacted by the use of a reverse mortgage.

There are negatives with this program and are listed below:

The fees with a reverse mortgage tend to be higher than a conventional mortgage. The costs of origination and closing costs as well as FHA Homeowner’s Insurance are higher because of the type of loan being serviced.

The process of acquiring a reverse mortgage can become time consuming. It is now your responsibility to locate a HUD approved HECM counselor, a reverse mortgage lender and understand the requirements of the program. Fortunately, there are resources available through HUD and FHA on how to start a reverse mortgage.

Although Medicare and Social Security are not affected by a reverse mortgage, Medicaid could be. Since one payment option is monthly checks, Medicaid may see this as income therefore possibly affecting your benefits.

You must be informed regarding the requirements of a reverse mortgage. HUD and FHA created this program to assist mature Americans being able to stay in their homes and remain independent by offering the use of equity in their home for supplemental income. For more information visit Reverse Mortgage Pros and Cons.