The Pros And Cons Of A Reverse Mortgage

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If you need a lump sum of cash or a way to supplement your monthly income, a reverse mortgage may be the solution you are looking for. A reverse mortgage allows individuals to extract the equity they have in their home so that they can use this cash to cover a variety of expenses. However, there are also disadvantages that come with the use of a reverse mortgage. Continue reading to learn more about some of the pros and cons of choosing to take out a reverse mortgage.

The Pros

1. Easy To Qualify - Reverse mortgages are a very simple type of loan to qualify for. Since these loans are based on the equity in your home, there is often no income or minimum credit score requirements associated with these loans.
2. No Need To Worry About Leaving Debt Behind - A reverse mortgage is secured by the house that it is attached to. Consequently, the balance due on these loans cannot exceed the selling price of the home. What this means is that your heirs will never need to worry about repaying a reverse mortgage in the event of your death. 
3. Remain In Your Home - While homeowners can choose to sell their homes outright to extract the equity in their homes, this option requires individuals to move out of their homes once they have been sold. Reverse mortgages allow individuals to remain in their homes while still receiving payment for the equity in their homes. 

The Cons

1. Reduced Estate Value - If you choose to use the equity in your home to cover expenses during your lifetime, the value of your estate will be reduced at the time of your death. This can be a serious disadvantage if you were hoping to leave behind a significant inheritance for your heirs. 
2. Could Impact Government Benefits - If you are currently receiving need-based benefits from the government, choosing to take out a reverse mortgage could impact your ability to qualify for these benefits. This is because the income you receive each month from your reverse mortgage will be taken into consideration when determining whether or not you meet program eligibility requirements. 
3. Additional Fees - Reverse mortgages come with many of the same fees as conventional mortgages. This includes interest fees and origination fees. These additional fees can significantly add to the balance of your loan over time. 

The Bottom Line

Reverse mortgages provide a simple way to get the money you need to pay for a large expense or to make ends meet every month. However, it is important to consider the impact that these loans may have on the value of your estate and your ability to collect some government benefits before deciding if a reverse mortgage is right for you.

To learn more about reverse mortgage loans, contact a loan service in your area.

10 May 2023