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Pros & Cons

Deciding if a reverse mortgage is the right choice for a homeowner can be confusing. Here are some of the significant pros and cons broken down in an easy to understand format.

 
 

Pros

Customization - Like people, reverse mortgages differ greatly depending on a variety of factors. First, there is more than one type of reverse mortgage loan. There is actually three – single-purpose, federally-insured, and proprietary. From there more factors are taken into consideration when going through the loan process. The homeowner’s age, home equity interest rates and location are all considered. Because of these variations, each loan experience is different and customized to accommodate each homeowner's specific circumstances.

Cash Received - Just like the loan, the payments received can be customized to the homeowner's circumstances. The three standard options for payments can be received in the form of a continuous monthly loan, a line of credit, or one lump sum. Also, a combination of the three is allowed (Ex: 20% lump sum, 80% line of credit). Something favorable compared to other loans is the cash received does not have spending restrictions. The cash use is up to complete discretion of the homeowner.

Homeowner Keeps House - The lender technically does not receive the title to the homeowner's house. Therefore, the homeowner will not be forced to leave. The residents may stay in the house until they choose to move to another residence or die. Also, the homeowner does not owe the lender anything until the home is vacated.

 

Drawbacks

Fewer Things to Leave Family - Because a reverse mortgage is largely based off of the equity of the home, the home is typically used as compensation during the payback phase. This leaves the homeowner’s family with less than they might have expected.

Interest Increases Debt - Like most loans, interest plays a major role in the payback phase. Because of this, the debt grows as tend passes.

Unexpected Fees - The homeowner might have to pay for initial loan counseling. Also, there are initial loan feeds and additional closing costs. Some loans have a monthly service fee. These can all be negotiated upfront, but it is important the homeowner take note of the additional fees.


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