What are the reverse mortgage pros and cons?


When considering the pros and cons of a reverse mortgage it is important to examine the whole process of obtaining a reverse mortgage and estimate all the costs against what the homeowner will gain.

Reverse Mortgage Pros:

  • The main advantage of reverse mortgages is that they allow older homeowners to draw cash in exchange for their property. Instead of making monthly payments to the lender, as is the case with a standard mortgage, the lender pays the borrower.
  • Reverse mortgages do not require income in order to qualify for them.
  • Homeowners have the right to live in their property to the rest of their lives even if the loan and its accompanying interest exceeds the value of the property at some point.
  • Even if the sale price of the property which pays back the loan is less than the sum of the loan and its accompanying interest the lender is obligated to accept it and cannot go after the borrower's other assets.
  • Homeowners cannot be forced to sell their property with the purpose of paying back their loan.

Reverse Mortgage Cons:

  • Like with any other loan, homeowners have to pay certain fees to get money. Though those fees can be rolled into the loan, they can be much higher than a conventional mortgage and vary depending on the selected reverse mortgage program and the lender.
  • That is why it is very important to do the needed calculations in order to see how much exactly the reverse mortgage will cost against what you will receive. For some homeowners a better option than getting a reverse mortgage would be to sell their property and move to a less expensive one.
  • One of the biggest disadvantages of reverse mortgages (and often times the reason why it is considered the last resort if cash is needed) is that once you enter a reverse mortgage you actually grant your home ownership to your lender. In essence you deprive your heirs of your home equity.
  • Reverse mortgages have limits too. In order to reduce the risks involved, reverse mortgage lenders limit their loans to amounts below their preliminary estimation of the property's value.
  • You should always consult a specialist about the risks and traps of reverse mortgages before committing to this type of loan. If you fall a victim of scam or a predatory lender you might lose your most valuable asset - your home ownership.
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