Consumer's Guide to the Benefits and Drawbacks of Reverse Mortgages

Seniors should weigh the pros and cons before tapping into their home equity. These loans are beneficial to many borrowers but seniors should consider all options. These reverse mortgage pros and cons can help potential borrowers determine if a loan is in their best interest. Pro con list

A reverse mortgage may seem like the best option for cash-strapped seniors to use their home equity. Many seniors are unable to decide on the cost of a reverse loan when weighing the pros and cons. Reverse mortgages have many of the same expenses as conventional mortgage loans. However, borrowers who are looking for a federally insured loan (HECM) must also pay mortgage insurance premiums.

Depending on which loan product is chosen, borrowers will be required to pay an upfront MIP of either 2% or 0.1% of the claim amount. An annual MIP equaling 1.25% of the loan balance will also be charged. Although this may seem costly, mortgage insurance guarantees that borrowers will not owe more than the home is worth. Many seniors could end up owing thousands more than the home's value without this insurance. Additionally, unlike other fees, MIPs can be financed into the loan. This eliminates any out of pocket costs for the borrower.

While there are pros and cons to reverse mortgages, it is important to remember that borrowers must adhere to certain guidelines in order to avoid their loan becoming due. Borrowers must complete all home repairs and maintain their home in order to keep their loan in good standing. Pro con list maker Borrowers must also pay their property taxes. The loan will be canceled if the borrower cannot afford them.

It is important to weigh both reverse mortgage cons and pros, but many seniors are focused on one fact: these loans allow seniors stay in their homes while paying off their monthly mortgage payments. A borrower's age, equity level and other factors may determine whether they are eligible for additional cash. Borrowers can keep the proceeds of loan proceeds without paying taxes because they are not considered income taxable. Borrowers' Social Security and Medicare benefits will not be affected by the loan proceeds. This benefit is the most popular among reverse mortgage pros and con's.

These loans don't just eliminate mortgage payments, they also allow seniors the option to defer payment until either of the borrowers dies, sells the house, or vacates the property. Both borrowers can choose to move into a nursing facility, and they will receive a 12-month extension of their loan. This benefit is not available with other types of mortgage loans.

These loans help seniors keep their homes more secure by allowing them to defer payments and repay existing mortgage debts. A loan may be available to seniors who are at risk of losing their home or are not eligible for conventional mortgage loans. Although consumers need to weigh the pros and cons of reverse mortgages, there is one thing that is certain: seniors can get these loans without any financial risk.