The benefits and drawbacks of reverse mortgages

The benefits and drawbacks of reverse mortgages

Reverse mortgages are a great financial tool for retirees, and you've probably heard famous people like Tom Selleck extol their virtues on television. Property owners over the age of 62 can use this financial product to access the equity in their homes. You will still have financial obligations when moving or passing away, but until then, no payments will be required.

Important lessons

Homeowners 62 and up can use a reverse mortgage to access the equity in their house and generate tax-free income.

Staying in your own home during retirement can be made easier with the help of a reverse jumbo reverse mortgage. Even though you won't have a regular mortgage payment, you should still budget for and pay for necessary repairs, as well as homeowners insurance and taxes.

Reverse mortgage funds are not "free money." It's important to weigh the benefits and drawbacks of this product carefully before deciding to use it.

The Benefits of a Reverse Mortgage

In retirement, one is better able to control spending.

The monthly mortgage payment can be the largest expense for many retirees whose income drops significantly. A reverse mortgage can help you keep up with your bills even if your income has decreased.

There's no need to migrate

A reverse mortgage makes it possible to age in place (and perhaps remain in close proximity to loved ones) without having to sell the home. A reverse mortgage does include costs, but it could end up being cheaper than selling the house and buying something else or finding a new place to rent.

Mortgages in reverse: the drawbacks

The price is what it is.

Closing costs, FHA insurance premiums, and lender fees all contribute to the total cost of a reverse mortgage (origination fees are capped at $6,000 and vary by loan size). The borrower can add these expenses to the loan balance, but doing so will increase the amount owed and decrease the equity in the property. If your interest rate changes every month, you may additionally have to pay a monthly servicing cost of up to $35.

Prior to loan repayment, interest paid cannot be deducted.

When you were making payments on your mortgage, you could deduct the interest from your taxes; however, with a reverse mortgage, you will not be able to do so. That benefit is only available during the time you are making payments on the loan.

There is a risk of unintentionally breaking other rules of the program

To put it plainly, a reverse mortgage may cause you to go over the asset limit for government assistance programs like Medicaid and SSI. Your eligibility for certain benefits may be impacted as a result of this.