Should you choose a reverse mortgage? Pluses and minuses

For seniors, deciding whether to enter into a reverse mortgage can be complicated.

Here are some pros and cons to consider:

The pros

  • A reverse mortgage allows you to maintain the title to your home while receiving income from your equity.
  • The loan doesn’t typically affect Medicare or Social Security benefits.
  • Reverse mortgage income is viewed as loan proceeds, and therefore isn’t likely to be taxed. Be sure to consult an advisor to confirm the tax consequences of any loan.
  • As long as you follow the terms of your loan and pay for all insurance, property taxes and maintenance, you won’t be evicted.
  • After your loan reaches maturity and your home is sold, you are not required to pay more than the home’s value, even if the loan is greater than the value of the home. Also, the lender can leverage only the home, and no other assets, for repayment.

 The cons

  • The loan maturity date is triggered if you no longer use your home as your primary residence. If you move to a retirement or nursing home, the loan matures and you will have to repay the reverse mortgage.
  • Reverse mortgages cost more than traditional ones. The higher costs include the interest rate, appraisal fee, loan origination fee, mortgage insurance fee, title insurance fees and other closing costs.
  • Contracts for reverse mortgages include lots of complex provisions. Consult an attorney before signing.
  • Be aware that mortgage salespeople typically work on commission. Don’t let anyone pressure you into an arrangement.
  • If you want to keep the reverse mortgage in place after a spouse dies, it’s best to have both spouses’ names on the contract. If not, and the borrower dies first or otherwise transfers the home, or no longer uses it as a primary residence, the loan will mature. This is true even if the spouse is using the home as his/her primary residence.
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