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Hi! I’m Deborah Nance and today I’m going to talk about the Pros & Cons of a reverse mortgage.
Which do you want to hear first?……. Okay we’ll go over the cons first… the negatives.
The first negative is the fact that when a persona with a reverse mortgage dies, the heirs will inherit a home with a lien on it. A lien that needs to paid off within 6 months! (Heirs may be able to also get two 90 day extensions to payoff) So, if it is crucially important to you to leave your kids a home that is free and clear. You will want to find another solution besides a reverse mortgage. On the other hand if you feel like you’ve provided for your kids by raising them and teaching them to be independent, honest and hardworking and they do not expect or want you to leave them your home free and clear. Then a reverse mortgage might just work for you.
The second negative is Closing costs! A reverse mortgage has closing costs and they can be more than the closing costs on a traditional mortgage. So… It is very important to compare lenders and get the best rates and fees.
The next negative is that the balance on a reverse mortgage grows over time. You will owe more on the house in 10 years than you do after the first year. The only way to avoid this is to make payments on the reverse mortgage. (yes you can make payments on a reverse if you want to) though most never do.
If you spend all of the money from your reverse mortgage and the balance grows, some day when you are REALLY old, you may become sick and need money. If you have used up all of the funds in your reverse mortgage, what options will you have to get more money? You may be in a position where you have to sell and you won’t recieve as much from the sale of your home had you never done the reverse mortgage.
The pros – The biggest pro of all is the fact that you do not ever have to make mortgage payments on a reverse. You can if you wish, but it is never required. If you used the reverse mortgage to payoff your mortgage, you just increased your cash flow! Just imagine – no more mortgage payments – EVER. This “raise” will free up cash that you can put into savings for future emergencies and may also provide you with additional cash from the reverse mortgage itself in the form of a credit line or monthly payments to you.
The next positive is the Credit Line Growth. A reverse mortgage credit line grows over time! This is a great feature of the reverse mortgage. If you choose the credit line option on a reverse mortgage the lender can not cut off your credit line just because home values fall. In fact the credit line grows over time at a rate equal to the loan rate plus 1.25%. This could be a huge benefit down the road, especially if you refrain from withdrawing funds from the line of credit and just let that credit line grow and grow. Over time you would have access to much more money. If you never have and emergency and do not need to ever take the funds from the line of credit, then you haven’t borrowed those funds and your heirs would have a much lower balance to payoff when they inherit your home.
A reverse mortgage can be a great tool for retirement but it’s not for everyone. If you would like to explore the benefits and possible drawbacks to a reverse mortgage in your life please give me a call or click on the “Request a Reverse Mortgage Analysis” link below and complete the easy form – I will email you a personalized reverse mortgage quote.
The postings and opinions on this site are my own and do not necessarily represent the position of my employer.
Deborah Nance, NMLS#202003 Equal Housing Lender