You’ve probably seen one of the many commercials on TV for a reverse mortgage, and you’re probably wondering if you should get one for yourself or, for your older loved one. In this short article, we’re going to talk about what exactly a reverse mortgage is, and what are some of the pros and cons of getting a reverse mortgage so you or your loved one can make an informed decision about getting one.
A reverse mortgage is sometimes called a home equity conversion mortgage (HECM). This type of loan doesn’t require the homeowner to make monthly mortgage payments (though they are still responsible for the property taxes, homeowner’s insurance, and HOA fees if any), but it allows the homeowner to access the equity they’ve built up in their home.
Here are some of the pros of a reverse home mortgage:
- It allows people on a fixed income to remain in their homes until their death, without worrying about the financial burden of a mortgage.
- The homeowner keeps their home, regardless of their financial straits.
- The money can be disbursed in a variety of ways (such as a lump sum cash payment, or a monthly payment of funds).
Here are some of the cons of a reverse home mortgage:
- The interest rate on a HECM is higher than on a traditional home equity loan.
- When you die, your heirs are responsible for either paying off the balance of the reverse mortgage or selling the home in order to cover the balance.
- If you haven’t lived in the home for a year or more, you may not qualify to get the reverse mortgage.