Reverse Mortgage Pros and Cons

Equity Issues
Converting your home’s equity into nontaxable income while you stay in the home is the dominant feature of the Reverse Mortgage and may be its best feature. The borrower never owes more than the value of the loan when it is repaid — and if the home sale yields more than the value owed on the loan, you or your heirs keep that. You will, however, maintain responsibility for the property taxes and insurance during the program. The typical loan hurdles of income standards or credit checks also don’t apply, making the program reachable for many.

Reverse mortgages are very different from traditional loans. Borrowers who are on the younger side of the retirement spectrum need to know they risk draining all of the equity out of their home before they pass away and be mindful that the reverse mortgage loan would force the sale of the home in the event of a long term absence of the last borrower such as a nursing home or hospital stay.

High Fees
Frontloaded fees can be high with reverse mortgage loans, much more so than traditional loans, sometimes as high as $10,000-$15,000 and there have been occasions when proceeds from a reverse mortgage can interfere with the borrowers state aid program eligibility. For example: Medi-Cal in California can be impacted because, unlike Medicare, Medi-Cal takes financial need into consideration and the disbursement from a reverse mortgage might change your income profile enough to make you ineligible for these types of aid programs.

More are Considering Reverse Mortgages
Industry experts have noted that reverse mortgages are being considered by a larger number of retirees these days, particularly when recent changes raised the eligible home-value limit to $625,500.

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Take a minute now to review our quick overview of reverse mortgage pros and cons.

Overview of Reverse Mortgage Pros and Cons

Advantages (Pros)

• Monies can be paid to you in the form of a lump sum payment, line of credit, or fixed monthly payment, or a mix
• Homeowner stays in property for life
• Loan never goes upside down
• Heirs are never responsible for more than the loan amount and keep any extra monies after home is sold
• Interest rates are typically lower than traditional mortgages


Disadvantages (Cons)

• Borrower still pays taxes, insurance, household expenses
• High front end fees
• Reverse Mortgage income could impact state need based aid programs
• Property must stay owner occupied
• Long hospital or nursing facility stays could force sale of the home
• Can be complex─use caution and choose a lender carefully


See our page on the Pitfalls of a Reverse Mortgage here:
Reverse Mortgage Pitfalls (Click Here)

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