Pros and Cons of Reverse Mortgages

Pros and Cons of Reverse Mortgages


As a senior citizen, chances are you have heard of a reverse mortgage. These are available to homeowners who are age 62 or order and it will allow them to convert a portion of the equity that is in their home into spendable cash. The reverse mortgage was originally developed to help any retiree who had limited income to utilize the wealth that had accumulated in their home. This money could then be used for health care or living expenses. However, there is no type of restriction or rule dictating how the reverse mortgage proceeds are able to be used.

The loan is referred to as the reverse mortgage due to the way the traditional payback of a mortgage is reversed. Rather than making payments each month to a lender, which is what happens with a traditional mortgage, the lender will make payments to the borrower. The loan will not have to be paid back until the home is vacated or sold. As long as the borrower is residing in the home they do not have to make any type of monthly payment to the balance of the loan; however, they have to remain current on their homeowners insurance and property taxes.

However, just like anything else, there are both pros and cons related to the reverse mortgage, which are highlighted here.

Pro: No repayment necessary as long as you continue living in the home.

The reverse mortgage will allow you to turn the equity that is in your home into cash. You will receive the funds how you desire: as a line of credit, monthly check, lump sum or a combination of these. As long as you live in the home you will not have to make any type of monthly payment. With the reverse mortgage, the loan balance will increase as time passes and then eventually be paid off when you leave the home permanently. With the flexibility of the reverse mortgage you also have the option to pay off a portion, or all of the balance at once without any penalties.

Con: The reverse mortgage often comes with high fees.

The reverse mortgage is still a loan, which means that you will have fees related to the loan to repay. Origination fees, along with other fees are usually pretty high. The reverse mortgage is a type of home equity loan that is not based on your credit score or income, which means the lender is presented with a unique set of risks. Some of those risks are offset with higher fees.

Pro: Ability to retain complete ownership of your home.

Even when you decide to take a reverse mortgage, you will continue to own and to control what will happen to your home. You will retain all of the responsibilities and benefits that home ownership has to offer. You will have to continue paying your homeowners insurance and property taxes and you will have the ability to sell your home and receive all of the equity present once the loan has been repaid.

Whether looking for a reverse or 2nd mortgage Canada, finding the right professionals is important.