Reverse mortgages can serve as a potential path for older Americans to gain access to additional cash in retirement, but there are several considerations a retiree should make before applying that are both pros and cons. This is according to a new column published this week in U.S. News & World Report.
A primary advantage of a reverse mortgage is that it can allow seniors a new potential path to cover current expenses, according to Katie Ross, education and development manager for American Consumer Credit Counseling in Auburndale, Mass.
“Money from a reverse mortgage can provide seniors with the financial security they need while allowing them to stay in their home,” Ross tells U.S. News, which can help a retiree to avoid moving to a less expensive or smaller home.
This is in addition to the idea that qualifying seniors will not have to meet the same criteria normally associated with other loans, Ross says.
“There are no credit-worthiness or income requirements,” Ross tells the outlet. If a borrower is at least 62 in the case of a Home Equity Conversion Mortgage (HECM), lives in the home and has enough equity to draw upon, then a reverse mortgage could serve as a viable option.
“The funds from your reverse mortgage loan can be used for any purpose,” adds Joseph J. Zoppi, managing partner of Templar Real Estate Enterprises in Princeton, N.J. to the outlet. “The homeowner does not need to make any monthly mortgage payments as long as the homeowner lives in the home and continues to meet their obligations,” Zoppi says, citing property taxes, maintenance and insurance fees as the major obligations to keep the loan in good standing.
A drawback of a reverse mortgage is for those who are very conscious of wanting to leave their home as a bequest asset to their heirs, Ross explains to U.S. News.
“You will have less equity in your home that you may want to leave to your children,” she says.
Other cons to consider according to Zoppi include the generally higher upfront costs associated with getting a reverse mortgage, and potential impact on a borrower’s ability to avail themselves of other government assistance programs such as Medicaid, he explains.
“The fees for a reverse mortgage can be higher than a traditional mortgage,” Zoppi says. “The homeowner’s eligibility for certain government programs, such as Medicaid or Supplemental Security Income, may be impacted.”
For those who are short on cash, do not intend to leave their home to an heir and want to remain in the home they currently live in, a reverse mortgage could present a viable opportunity for creating additional cash-flow, though there are other options worthy of consideration including downsizing into another home, selling the home to family members or refinancing an existing traditional mortgage, the column reads.
Read the column at U.S. News & World Report.