Reverse Mortgage Pros And Cons

Reverse mortgages seem like a godsend for those seniors who have home equity, and are pressed for cash. It's a perfect opportunity to receive a tax-free source of income to use in any fashion that you like. In this article I will discuss reverse mortgage pros and cons to help you make a more informed decision if they are right for you.

First, let's talk about some of the benefits involved with a reverse mortgage. There are not many requirements -- other than the fact that you must be 62 years old, and have home equity with little mortgage against it. Other than that, no minimum required credit score or income level is needed.

Another advantage is that it offers you the flexibility of receiving your payment either in a lump sum, a monthly payment, line of credit, or combination of any of the above. This flexibility makes a reverse mortgage loan appealing to many different types of people.

Finally, you're not required to pay back your loan with monthly payments. It will be paid back when your home is sold, with the proceeds going to the loan. If your proceeds exceed the loan amount then you get to keep the difference. Or, if you've passed on the difference goes on to your heirs. If you're proceeds aren't enough to cover the loan amount then the lending institution has to cover the difference.

The main disadvantage of a reverse mortgage is that it is a very complex loan. If you don't structure it right it could become very expensive. Because of this complexity, it is required that you receive financial counseling before you can be accepted for reverse mortgage loan.

Since you have the security of guaranteed payments, you pay for this luxury through interest, closing costs and many other service fees that are required to structure a reverse mortgage loan. While these costs are added into your loan balance, they are still subjected to interest.

The other disadvantage is that you spend part or all of your home equity. This means that a reverse mortgage does not allow you to leave as much to your heirs. This is something that you should take into consideration before applying for reverse mortgage loan.

In conclusion, I've given you some reverse mortgage pros and cons to consider. This is a very complex subject, and if you're interested in a reverse mortgage loan, I urge you to seek out more information before you make your decision.