Pros and Cons of Reverse Mortgages – Boston Home Loan Update

You can apply and get approved for a reverse mortgage loan in Greater Boston or no matter where you live in the country as long as you are a senior citizen, you have no outstanding (or low amounts of outstanding) loans on your house, and the house in your primary residence. While reverse mortgages are not very widely known, and form only a very small percentage in the overall mortgage loan business, they are gaining importance, because of increasing costs and rising debts which many senior citizens face.

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Reverse Mortgage Loan

A reverse mortgage loan is a special type of mortgage loan which allows you access to the existing equity in your home — i.e. the lender will pay you pre-determined amounts of money according to the payment format selected by you.

Pros of Reverse Mortgage Loans

 

  1. The first and most important positive is that you will gain another regular income source which can be used to supplement your monetary requirements or, if you need, immediate cash to pay for medical bills, outstanding loans etc.
  2. The money you receive is non-taxable, since it is not considered income.
  3. The money you receive (since it is not considered income) will not affect any government related services like Medicare or Social Security.
  4. There is no stress regarding liability for either you or your heirs. The maximum amount of equity which you can gain access to will never be more than the total equity of your house so, at the end of the agreement, even if the house has lost its equity value, you and your heirs will not be held liable or responsible in any manner.
  5. Unlike a normal mortgage loan, your credit scores and current income will not be taken into account for approval. So, even if you are facing a foreclosure or bankruptcy, you can go for a reverse mortgage loan.
  6. The money which you receive can be used at your discretion according to your needs without any restrictions.

You can stay in your home as long as you choose — i.e. the lender cannot ask for repayment or foreclose on your house as long as you are alive (as long as you have not broken the terms of the agreement).

Cons of Reverse Mortgages

While reverse mortgages are helpful, there are a few negatives such as:

 

  1. High Closing Costs: In a manner similar to a normal mortgage loan, you will have to pay for the appraisal, escrow, origination fee, etc. While you do not have to pay for it from your own savings (the costs can be paid from the equity you receive from the loan itself), they are somewhat high, and your house equity will be lowered by a significant amount.
  2. Heirs: At the end of the agreement, when the loan must be repaid, your heirs have two options:
  3. They can pay back the owned amount and regain ownership of the house
  4. They can sell the house and, if any equity remains, they will have access to it

No matter which option they choose, they will not receive the original house equity — i.e. it can cause problems within your family when it comes to the inheritance, if you have not communicated the expectations in advance.

If you do not need the money, then it is probably better not to go in for a reverse mortgage, since you will be handing over a large amount of your house equity in the form of closing costs and payment of interests. But if your current fixed income is insufficient, and you really need access to immediate money without the fear of rejection, then a reverse mortgage may be a good option for you.

Phil Ganz (354 Posts)

Philip D. Ganz is a Boston Mortgage Broker and Boston Home Loan specialist. For information, expertise, consulting, or advice about home loans, refinancing mortgages, or commercial property loans, contact Phil with no obligation: 617-529-9317


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