The Pros and Cons of a Reverse Mortgage

A reverse mortgage is a collateralized loan product that allows retirees to borrow against the equity they have accrued in their homes. After taking out a reverse mortgage, homeowners have three options to access their loan: accept a lump sum of cash, receive fixed monthly payments, or tap into a variable-rate line of credit.

If you’re unfamiliar with home equity loan products, then it might take a while to wrap your head around the idea of a reverse mortgage. To simplify and streamline your research process, we’ve broken down some of the most important advantages and drawbacks of reverse mortgage financing.

Pros of Reverse Mortgages

  • Unlike a conventional mortgage, a reverse mortgage does not require you, the borrower, to make scheduled loan repayments. In fact, the loan balance of a reverse mortgage is only due and payable when the borrower experiences a maturity event, such as selling their home or permanently relocating their residency.
  • Taking out a reverse mortgage will not affect your property title rights or ownership conditions.
    If the underlying value of your home increases, you can refinance your reverse mortgage to secure higher loan margins.

Cons of Reverse Mortgages

  • Prospective borrowers will need to meet two key eligibility requirements to qualify for a reverse mortgage: they’ll need to be at least 62 years old and they’ll need at least 50 percent equity in their home.
  • Loan fees and interest can lead to significant year-to-year increases in the balance on a reverse mortgage.
  • While outcomes vary depending on location, taking out a reverse mortgage may preclude you from qualifying for needs-based government programs, such as Medicaid coverage or Supplemental Security Income.

Photo: Pexels

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