Pros and Cons of Reverse Mortgages

Posted by charles dennis

August 3, 2007

REVERSE MORTGAGE: Designed to strengthen senior citizens’ personal and financial independence, these loans allow homeowners to convert the equity in their home into cash. Any existing mortgage is paid off and homeowners don’t make any payments to the lender as long as they live in the house.
• Pros: Proceeds are tax-free as long as the property owner lives in the home. There are no income or credit requirements to qualify and equity may be drawn through monthly payments from the lender to the homeowner or as a credit line.
• Cons: Though the property may be passed on to the homeowner’s heirs, money received from a reverse mortgage is payable to the lender when the property owner leaves permanently. All the fees are paid for upfront.
• Most suited for: A senior looking to shore up his or her personal independence who has amassed a lot of equity in his or her home and expects to be there for at least three years or more.
• Least suited for: Someone looking to fill short-term borrowing needs.

AJC