Weighing Reverse Mortgage Pros and Cons
(San Francisco, CA)
It's always a good idea to weigh pros and cons for anything, and that goes with reverse mortgages. I have found in recent years that more of my elderly patients as well as friends of my parents have considered, at least once, a reverse mortgage.
They do so for varying reasons; more money for those on a fixed income, money to pay for medical expenses, even money for that last chance at a long dreamed of vacation. Everything comes with benefits and drawbacks, and the same applies to reverse mortgages.
One of the biggest benefits of reverse mortgages is that funds paid out on a monthly or quarterly basis can certainly increase financial stability for retirees or older people living on fixed incomes.
Loan amounts can be funded in a variety of ways including a monthly "stipend" or allowance, so to speak, or deposited into a type of revolving credit line, similar to a home equity line.
While reverse mortgages certainly offer a number of benefits, they also come with a down side. Don't forget about the fees applied to reverse mortgages which can include loan origination fees, interest rate fees, mortgage insurance fees, title insurance fees, and appraisal fees.
I was alarmed to find that in some cases, these costs can range up to $30,000 or $40,000, rolled into the loan!
Another drawback is that the repayment will be due in full if you move out. That means if you have an accident or need to be placed in a long-term care facility for whatever reason and you're out of the house longer than a year, the loan will become due.
Last but not least, reverse mortgages decrease the equity of a home, leaving less to pass on to heirs upon death.