Pros and Cons, Benefits, Pitfalls and Disadvantages of Reverse Mortgages
People who are marketing reverse mortgages are really good at what they do. Just look at reverse mortgages now – they are the hot trend in loans and getting some cash into the coffers of America’s seniors.
While you may believe all the hype, common sense will tell you that just like all good things they have their pros and cons, advantages and disadvantages, benefits and pitfalls.
PROS, ADVANTAGES, BENEFITS
A reverse mortgage is another way that you can get some money from your own home. In the past, you had to sell your house or use it as collateral for a loan which had to be repaid in monthly installments.
Reversed mortgages, on the other hand, is a type of mortgage where the loan amount is not repaid as long as the homeowner is still living inside the house. The loan is only repaid when the borrowers dies or permanently moves out of the house, or if the house is sold. The lender pays out the loan in three ways: lump sum, monthly payouts, or line of credit. This in reality is a great pro and benefit for the elderly.
There are actually three types of reverse mortgages: (the least expensive) single purpose reverse mortgage, HECM or Home Equity Conversion Mortgages, and private proprietary reverse mortgages. The most popular programs are the HECM loans that are backed by HUD with FHA mortgage insurance.
Single purpose loans are the cheapest, but you can only use them for only one purpose, that can be either home repair or for paying off property taxes. If you seek low-cost mortgages that you can use for different purposes, HECMs are some of the least expensive ones you can find, partly because the american government insures them. Low prices on HECM programs can be added to the list of pros and benefits.
Reverse mortgages are a lot like wine: the older, you are the better. The older you are, the more money you can get. Seniors must be at least 62 years old and must own their home. Eligible homes in this case include single detached homes as well as HUD-approved condominiums and dwellings. Trailer homes do not qualify.
CONS, DISADVANTAGES, PITFALLS
If you’re taking out an HECM reverse mortgage, you’re required to talk to a counselor designated by the federal government. You will find out soon enough that if you aren’t careful, reverse mortgages can negatively impact your finances. Your credit consultant should be sure to point out to you all the cons, disadvantages and pitfalls of reverse mortgage loans aloung with all the costs and fees. Having to talk to a credit adviser can seem like a great disadvantage but in the end it will serve as benefit and can be considered a check on your list of pros.
The federal government has quoted these disadvantages and pitfalls of reverse mortgages:
• They can affect your eligibility for another type of loan.
• This may affect the inheritance of the borrower’s heirs.
• The borrower could lose his or her eligibility for Medicaid and Supplementary Security Income (SSI).
What most people do not know is that Medicaid and SSI considers loan advances as cash assets or “liquid assets” when they are kept beyond the month that a recipient receives them. Borrowers may just find themselves ineligible for these State benefit programs.
There are many reasons why despite the above cons, disadvantages and pitfalls a senior citizen would still take out a reverse mortgage loan. The most common reason is to enable the borrower to pay for the cost of living or to maintain a lifestyle. Still, there are others who use reverse mortgages to plan their estate for the benefit of their heirs.