Safety and Security

Reverse mortgage pros
Why would you get a reverse mortgage? Primarily for money. A reverse mortgage gives you an income stream that can be very welcome in retirement, or a significant lump-sum payment. For those among the millions of Americans underprepared financially for retirement, that can be a major attraction.

On top of that, because a reverse mortgage is a loan, the payments made to you aren’t technically income, so they’re tax-free, another big plus. And one more thing: Whereas some retirement-funding solutions require you to sell and downsize your home or even to move to a less costly region, reverse mortgages let you stay in your home.

 

Reverse mortgage cons
It might seem like a no-brainer decision at this point, but hang on to your brain. There are some drawbacks to a reverse mortgage to consider:

 

1. You may not qualify for one. Many people do, though — especially if they’re 62 or older and own their homes entirely or owe very little on them.

   2. A reverse mortgage may not offer you as much money as you’d hoped for. The amount you can borrow depends on a bunch of factors, such as how much longer you (and your spouse, if you have one) are expected to live, the value of the home, the equity you have in it, and prevailing interest rates. Interest charges are added to the balance of the loan over time.

2. There are closing costs, just as with regular mortgages, and they tend to be higher. The applicable interest rates tend to be higher, as well.

   4. While living in your home with the money you received from the reverse mortgage, you’ll still be responsible for expenses such as property taxes, home insurance, home repairs and maintenance.

   5. Once you leave your home, it will likely need to be sold to pay off the reverse mortgage. If you’d hoped to leave it to your children, you won’t be able to do so unless the debt can be paid off in some other way.

   6. Receiving income from a reverse mortgage might hurt your eligibility for various benefits, such as Medicaid and Supplemental Security Income.