Reverse Mortgages Pros and Cons

When making the determination as to whether or not a reverse mortgage is best, you will need to weigh all the reverse mortgages pros and cons with respect to the financial solution.  If you do not take this initial approach with respect to the reverse mortgage you may find yourself insufficiently funded for the rest of your retirement.  First a definition of the financial vehicle is necessary to see if you are the right demographic. 

The reverse mortgage is a mortgage loan available to individuals who are sixty two years of age and upwards.  Reverse mortgages are ideal for persons on fixed incomes because the lender is required to pay the borrower of the mortgage instead of the homeowner paying the lender.  The lender is able to recoup his or her investment upon the passing of the homeowner through proceeds of the sale of the owner’s property.  Further, in order to qualify for a reverse mortgage the owner ideally has his house paid in full with only the standard tax lien against the property.

The money through a reverse mortgage comes to the homeowner as a non-taxed distribution and is not subject to a monthly payback.  Again, as mentioned in the first paragraph, the lender receives his or her interest charged as well as repayment of the loan’s principal when the house is sold upon the demise of the homeowner.  Another advantage to the senior homeowner is that the money may be spent any way he or she prefers. 

The money may be received as a lump sum, monthly income, line of credit or a combination of the three.  Also the senior homeowner does not need to worry about issues such as foreclosure as there is never a monthly housing expense due to the lender.  The only way the house can be sold during the borrower’s lifetime is at the sole discretion of the borrower or if he or she becomes incapacitated and unable to live in the property for more than a year.

Even when the borrower passes away, if the proceeds of the house are not adequate in taking care of the loan amount then the mortgage insurance will pay off the remaining amount due.  Additionally, on the flip side should the house sell for a price higher than the existing loan amount the overage is provided to the homeowner’s heirs.  So when it comes down to reverse mortgages pros and cons the pros clearly have it when considering a reverse mortgage.  Again, the stipulation is you must be 62 years of age or greater and own a property that is free and clear.