Weighing reverse mortgage pros and cons can be one of the most helpful exercises a senior can do when figuring out their finances. In this struggling economy many seniors find a reverse mortgage to be a great financial tool when utilized to stay in their home. Some of the biggest reverse mortgage pros are that the funds can be used however you want. On the other hand, some feel that when measuring reverse mortgage pros and cons, one of the largest reverse mortgage cons is that it can have high initial costs.
Before assessing reverse mortgage pros and cons, it is important to understand what a reverse mortgage is. Reverse mortgages are available to qualified applicants who are 62 years old or older, own a home with sufficient equity and live in it as their primary residence. A reverse mortgage allows you to liquidate a portion of the equity you have retained in the home. With a regular home loan, the bank requires you to have a regular source of income in order to obtain a loan approval. With a reverse mortgage, the bank pays you which makes income qualifications unnecessary.
To better understand reverse mortgage pros and cons, it is important to see that one of the biggest pros of a reverse mortgage is the flexibility of the loan. Borrowers can choose how they receive payments and what they want to do with those payments. Many use the funds from a reverse mortgage to pay off debt, go on vacation, or use the funds for healthcare costs. In addition, the freedom to choose how to receive payments allows the borrowers to do what is best for them. Seniors can set up a monthly payment plan, take out a line of credit, or receive the entire lump sum in a one time payment. All the flexibility makes it easy for most to see that the reverse mortgage pros outweigh the cons when exploring reverse mortgage pros and cons.
Reverse mortgage pros tend to outweigh the cons because borrowers do not have to make any monthly mortgage payments for as long as the continue to live in the home. Imaigne never making another monthly mortgage payment again. Another pro of a reverse mortgage is that because a reverse mortgage is federally-insured, the borrower, or their heirs, will never owe more than the home is worth, no matter how high interest rates rise or how low home values drop. This is because the reverse mortgage is non-recourse.
Reverse mortgages offer more protections to the borrowers than any other mortgage product. Because the loan is federally-insured, the government requires that borrowers receive counseling through a HUD-approved counselor before applying for this unique loan. This reverse mortgage pro protects people from unscrupulous lenders. In order for the reverse mortgage to be federally-insured, the borrower must pay mortgage insurance to the Federal Housing Administration. This insurance serves as a protection in the event that when the reverse mortgage comes due, if you owe more than your home is worth, the FHA will cover the loss.
The pros and cons of a reverse mortgage can sometimes be challenging to navigate if you do not have all of the facts. Many find that it becomes an easy decision once they are armed with the education becuase reverse mortgage pros tend to outweigh reverse mortgage cons. Though reverse mortgages do have fees associated with them, a revervse motgage allows borrowers to finance these fees so there is a low out-of-pocket cost. Because a reverse mortgage is giving the applicant additional funds each month and/or eliminating their monthly mortgage payment, there are no credit and income requirements associated with a reverse mortgage.
To fully address reverse mortgage pros and cons, one must also look at the reverse mortgage cons. Perhaps the largest con associated with this type of mortgages is the perceived high costs associated with its origination. However, this possible reverse mortgage con was recently addressed by the Department of Housing and Urban Development. In response to the criticisms, HUD developed and released a new product called the Home Equity Conversion Mortgage (HECM) Saver. The HECM saver takes this possible reverse mortgage con and turns it into a reverse mortgage pro. This program offers reverse mortgages that charge only .01% of the home's value in mortgage insurance, rather than the 2% that is associated with the standard. The possible reverse mortgage con of the HECM Saver is that less of the home's equity is available to the borrower.
Measuring reverse mortgage pros and cons can be tricky which makes it important to address them before making a decision. A reverse mortgage has the ability to eliminate monthly mortgage payments, as well as worry. Educate yourself about reverse mortgage pros and cons to determine if a reverse mortgage is the right choice for you or your loved ones.