Advantages and Disadvantages of a Reverse Mortgage
A Guide to Reverse Mortgage Pitfalls and Benefits
For many people, a reverse home mortgage is a good way to
increase their income in retirement - positively affecting their quality of
Advantages of a Reverse Mortgage
The main advantage of reverse mortgages is that they are an
extremely flexible financial planning product with very few - if any -
restrictions on how you receive and use the money.
To many people, a reverse mortgage simply sounds too good to
be true. But, there really are no catches - given the right set of
circumstances, a reverse mortgage is an ideal way to increase your spending
power in retirement.
Key advantages and benefits of reverse mortgages include:
No Risk of Default:
Unlike a home equity loan, with a reverse home mortgage
your home can not be taken from you. If you default on a home equity loan,
you could lose your home.
The Reverse Mortgage Lenders have no claim on your income
or other assets.
No Downside: You will never owe more than your home's
value at the time the loan is repaid, even if the reverse mortgage lenders
have paid you more money than the value of the home.
Tax Free: The money is typically tax free, since itís
a loan when the homeowner receives the funds, as either additional fixed
income or a lump sum.
No Restrictions: How you use the funds received is
not restricted - go traveling, get a hearing aid, purchase long term care
insurance, pay for your childrenís college education - anything goes.
Flexible Payment Options: You can receive the loan
money in the form of a lump sum, annuity, credit line or some combination of
Easy Pre-qualifications: There are no income
Home Ownership: You retain home ownership and the
ability to live in your home
Guaranteed Place to Live: You can live in your home
for as long as you want
Federally Insured: Some reverse home mortgages are
federally insured - these are known as HUD's HECM FHA insured Home Equity
Conversion Mortgages (HECM) reverse mortgages. With these, even if the
reverse mortgage lenders default, you'll still receive your payments.
No Maximum Loan Amount: For Seniors with a large
amount of home equity, private reverse mortgage lenders offer products with
no maximum loan amounts.
Disadvantages of a Reverse Mortgage
A reverse mortgage may not be for everyone, consider the following:
Beware if You are Eligible for Low-Income Assistance:
If you are currently or will be eligible to receive low-income assistance
from the Federal or State government (like Medicaid), you will want to be
careful that income from a reverse mortgage does not disqualify you from
that assistance. (NOTE: Social Security and Medicare are not impacted by a
Reconsider if You Are Planning to Move in the Near Term:
Since a reverse home mortgage loan is due if your home is no longer your
primary residence and the up front closing costs are typically higher than
other loans, it is not a good tool for those than plan to move soon to
Evaluate if You are Willing to Reduce Your Heirs
Inheritance: Many people dismiss a reverse mortgage as a retirement
option because they want to be sure their home goes to their heirs. And it
is true, a Reverse Mortgage decreases your home equity - affecting your
estate. However, you can still leave your home to your heirs and they will
have the option of keeping the home and refinancing or paying off the
mortgage or selling the home if the home is worth more than the amount owed
on it. There are numerous potential Estate and Retirement Planning benefits
to a Reverse Mortgage - see
Innovative Uses of a Reverse Mortgage for
more information on these options.
comments, or suggestions?
Please contact us:
American Midwest Mortgage Corp.
6363 York Road #300, Parma Heights, Ohio 44130
Thank you for visiting !
Tim Bradford -- OHIO
MB.803389/LO.007173 ---- NMLS CO.142066/LO.250013
2010 American Midwest Mortgage Corporation.
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