Pro’s of a Reverse Mortgage Loan
- Access home equity – You are able to access your home equity, likely a substantial portion of your wealth, without having to leave your home.
- Flexibility – The Home Equity Conversion Mortgage (HECM) program is extremely flexible in terms of withdrawing the proceeds of your loan.
- Line of credit – HECM’s credit line option can be incredibly attractive, as an unused credit line will grow over time.
- Remain in your home – As long as you keep your loan in good standing, you may remain in the home for as long as you live.
- Defer payments – You can defer payments until you leave the home or pass away.
- Pay off debt – This can be useful for paying off a mortgage or expensive consumer debt.
- Limit on what you owe – Neither you nor your heirs will ever owe more than the home is worth.
Con’s a Reverse Mortgage Loan
- Can be expensive – Though closing costs are typically financing into the loan, you may end up using up between $5,000 to $10,000 of your home equity immediately.
- Choices to make with complex tradeoffs – Though you will have help from a HECM counselor and hopefully other advisors, you will need to make a complicated decision.
- Use up your home equity – In many cases, you will end up using up a large portion of your home equity, both in the cash you withdraw and the interest that accrues over time. This will leave you with less wealth moving forward, and it will reduce the inheritance that you can leave.
- Move out and the loan becomes due – If you need to stay in a nursing home or an assisted living facility for over a year, the loan becomes due.
- Risk of foreclosure – Borrowers who do not keep the house in good repair or fall behind on tax and insurance payments face the risk of foreclosure.