A reverse mortgage is a type of loan that allows homeowners to receive payments on their house as opposed to them making payments to the lender. At first glance, this option seems too good to be true. But, before committing to it, there are some nitty-gritty details that people must consider when opting for this type of financing. So, here is some information regarding the pros and cons to consider when getting a reverse mortgage.

Advantages

• Multiple options of disbursement
  One of the biggest advantages of opting for reverse mortgages is that you can choose your payment method: whether it is in the form of monthly payouts, or receiving it in bulk.
• You retain ownership of your home
  As opposed to other mortgages where you have to vacate your house, in a reverse mortgage, you can continue to own and live in your house without any interruptions. It is a great way to improve your immediate finances and is preferable to moving or selling the property.
• No tax liability
  The payments that you receive as a part of a reverse mortgage are not considered to be taxable by the IRS since it is considered to be a loan advance instead of taxable income.
• Retirement safety
  These mortgages are actually a great option for retired and senior citizens, since it allows them to have access to funds, which might otherwise be stuck in the form of a fixed asset like a house or a property.

Disadvantages

• The property must be occupied
  For properties that have been reverse mortgaged, it is important that it remains occupied at all times. Lenders visit the houses from time to time to verify that the house is occupied throughout the year.
• Risk of foreclosure
  If you fail to pay your property taxes, HOA fees, homeowners insurance payments, and other costs on time, your house is at a risk of being foreclosed for violation of tax laws.
• High fees
  When signing up for a reverse mortgage, information you must know is that there are several expenses involved in completing the entire procedure, which may include the mortgage fees, FHA insurance charges, as well as closing costs.
• Accumulation of interest
  Since there is no monthly payment plan or schedule involved in a reverse mortgage, the amount that you borrow incurs interest over time. As a result of this, one needs to be careful to not default on any payment to avoid accumulating further debt.

A reverse mortgage is a loan that allows individuals older than 62 to improve their financial well-being. They can convert part of their home equity into lump sum cash, fixed monthly payments, or line of credit, according to their preference. The money can be used to pay for medical bills, in emergencies, or to pay off a mortgage. Here’s what you should know about reverse mortgages in case you’re looking for one.

How much can you borrow?
For reverse mortgages, the loan amount can’t exceed the value of the property against which it is borrowed. Federal regulations require lenders to ensure that the loan amount doesn’t exceed the value of the house by structuring the transactions accordingly. Additionally, these regulations state that the owner/borrower is not liable to pay off the balance amount in case it exceeds the property value.

How are reverse mortgages paid for?
A reverse mortgage is payable when the borrower sells the house, relocates permanently, or dies. Unlike forward mortgages, reverse mortgages don’t need the borrower to make any monthly payments. They are only liable to pay interest on the money received, which is rolled back into the loan balance. While the owner gets to keep the title to the home, their home equity reduces over the loan tenure.

Who can take a reverse mortgage?
This type of loan is ideal for seniors and retirees whose net worth comes mostly from the value of their home. Seniors who don’t qualify for a home equity loan or can’t refinance due to limited cash flow or poor credit can opt for reverse mortgages. Home Equity Conversion Mortgage (HECM) for purchase is a reverse mortgage that allows seniors to buy another property. That said, it is complex, and you should study the risk factors before getting one.

What are the risks associated with reverse mortgages?
Reverse mortgage scams are not unheard of. Unreputable vendors could offer to help seniors secure reverse mortgages by undertaking house repairs. They don’t provide quality results and get away with the homeowner’s money instead. For spouses living together in a home with only one spouse named as a borrower on a reverse mortgage, the other spouse can lose the home if the borrowing spouse dies first. Besides, reverse mortgage lenders charge fees and closing costs and may also charge mortgage insurance premiums for federally-insured HECMs.