The Pros and Cons of Reverse Mortgages According to AARP
Are you considering a reverse mortgage, but unsure about the benefits and drawbacks? Let's dive into the pros and cons according to the experts at AARP. Here are some key points to consider before making your decision:
Pros:
- Supplemental Income: A reverse mortgage can provide senior homeowners with a valuable source of income, allowing them to tap into the equity of their home without having to sell or move.
- No Monthly Payments: With a reverse mortgage, borrowers are not required to make monthly mortgage payments, which can bring financial relief to retirees on fixed incomes.
- Flexibility: Homeowners have the option to receive the funds from a reverse mortgage in various ways, such as a lump sum, monthly payments, or a line of credit, giving them flexibility to meet their specific financial needs.
- Home Ownership: By taking out a reverse mortgage, seniors can continue to live in their home and retain ownership, providing a sense of stability and security as they age.
- No Repayment Until Death: The loan is typically repaid after the borrower passes away or permanently moves out of the home, so seniors can enjoy the benefits of the reverse mortgage without worrying about immediate repayment.
Cons:
- High Fees: Reverse mortgages often come with high upfront costs, including origination fees, closing costs, and mortgage insurance premiums, which can eat into the equity of the home.
- Reduced Inheritance: Since the loan balance increases over time, the equity in the home may decrease, potentially reducing the amount of inheritance left to heirs.
- Impact on Benefits: The funds received from a reverse mortgage could affect eligibility for certain needs-based programs, such as Medicaid, Supplemental Security Income (SSI), or other benefits, so it's important to consider the implications.
- Interest Accumulation: Interest on a reverse mortgage accrues over time, increasing the total loan balance and potentially reducing the equity remaining in the home.
- Risk of Foreclosure: Failure to pay property taxes, maintain homeowner's insurance, or keep up with home maintenance could lead to foreclosure on a reverse mortgage, putting the homeowner at risk of losing their home.
Before deciding on a reverse mortgage, it's crucial to weigh the pros and cons carefully and consult with a financial advisor or housing counselor to fully understand the implications. While a reverse mortgage can offer financial benefits, it's essential to consider all aspects of the loan to make an informed decision that best suits your individual needs and circumstances.
Remember, knowledge is power when it comes to making financial decisions that will impact your future. Take the time to educate yourself and explore all options available to you before moving forward. Your home is your biggest asset, so it's important to protect it wisely.
