Pros And Cons Of Reverse Mortgages
Taking reverse mortgages allows one to get better management of one’s retirement expenses, without moving from the home one’s used to living. And thankfully it’s not considered income so one doesn’t need to worry about tax liability. There are two sides to a coin while taking reverse mortgages has pros it also has cons. It’s quite complex and one could risk losing one’s home to foreclosure. Let’s dive properly into the pros and cons below:
Pros of Reverse Mortgages
There are advantages one can get from taking reverse mortgages, and some of them are:
Better Management of Retirement Expenses: There’s a reduced income for retired seniors, and costs of living don’t necessarily reduce after retirement. Monthly mortgage payments are a major expense for senior homeowners, but with a reverse mortgage, you get liquid cash to cater to your living expenses.
No Need For Moving: With a reverse mortgage, there’s no need to move around. One gets to age in the home one is used to with no need to look for another affordable home. It’s also cheaper to get a reverse mortgage than to move.
There’s No Tax Liability: The money one gets from a reverse mortgage is not considered an income but a loan advance, so you don’t get taxed on the income, unlike some other retirement income.
There’s Protection If The Balance Exceeds The Home’s Value: In cases where the market value of your home is lesser than that of the reverse mortgage balance, you don’t have to worry about losing your other properties or your heirs paying the price because a reverse mortgage is non-recourse financing.
Cons of Reverse Mortgages.
There are downsides to taking a reverse mortgage, and they include:
It’s Not Free: Although a reverse mortgage comes tax-free, it’s still associated with other costs. Apart from being up to date with the property tax and other homeowner expenses payment, you also have to pay an upfront insurance premium of your home’s appraised value and origination fees, which depend on your loan amount. You can add these costs to your mortgage balance, which means you will receive the lesser funds.
Home Could Be Lost To Foreclosure: Although there’s no regular monthly payment with a reverse mortgage, none of its requirements must default. Home can be foreclosed if seniors don’t pay property tax or HOA fees or homeowner insurance, and all other costs related to owning a home.
Retirement Benefits Can Be Affected: Reverse Mortgage can affect your ability to qualify for government benefit programs like Medicaid and Supplemental Security Income (SSI). You’ve to ensure you consult a professional who specializes in things like this before taking a reverse mortgage so you don’t violate other benefit requirements.
Reverse Mortgage is Quite Complex: It involves many rules and comes with risks that may not be worth the added cash. It’s also complicated because, with any small status change, your reverse mortgage option changes, and that may be difficult to handle without talking to an attorney specializing in elder law.
Who Can Take Reverse Mortgages?
Some seniors are better suited for putting their houses at risk and taking a reverse mortgage than others. One can go ahead and take a reverse mortgage if:
You plan on staying in your home for a very long time. You’re finding it difficult to manage the expenses of retirement. Your home’s market value is increasing.
Who Can’t Take Reverse Mortgages?
There are a few indicators to know if a reverse mortgage is not an ideal choice, and these signs include:
If you can’t afford to pay for the costs of owning a home. If you’re planning to relocate or move to a more affordable house. If you’ve any health issues and can predict where you will live in the coming years.
Conclusion
A reverse Mortgage looks good from afar, so it’s better to learn about the ins and outs, advantages, and disadvantages before making a decision. And although there are downsides to taking one, there are also benefits seniors enjoy but one needs to be very cautious about putting one’s property at risk.
Is Reverse Mortgage A Good Idea?
Generally, the answer to this question will ultimately depend on you because after going through the pros and cons of Reverse Mortgage, if you think it’s great for you, then go for it.
Are There Alternatives To Reverse Mortgages?
Yes, they include getting a regular mortgage, selling one’s home and moving to a more affordable place, or taking out a home equity loan.
