We had a recent topic on reverse mortgages that was about the proper handling of an heir's payment of the interest. Many of us have aging parents and clients, so I thought I'd start this discussion with the lists below that I copied from a page on a site called reversemortgageguides dot org. This should not be considered a complete list, so please add to the discussion as I have done in my next post, especially anyone that has firsthand experience.
Pros of Reverse Mortgages
Allows the homeowner to stay in the home.
Can pay off existing mortgages on the home.
No monthly mortgage payments are required, however the homeowner must live in the home as their primary residence, continue to pay required property taxes, homeowners insurance and maintain the home according to Federal Housing Administration requirements.
The homeowner receives payments on flexible terms:
Credit line for emergencies
Monthly payments
Lump sum distribution
Any combination of the above
A reverse mortgage can not get “upside down” so the heirs will never be personally liable for more than the home is sold for.
Heirs inherit the home and keep any remaining equity after the balance of the reverse mortgage is paid off.
Loan proceeds are not taxable.
The interest rate may be lower than traditional mortgages and home equity loans.
Reverse Mortgage Cons
The fees on a reverse mortgage are the same as a traditional FHA mortgage but are higher than a conventional mortgage because of the insurance cost. The largest costs are FHA mortgage insurance and the origination fee
The loan balance gets larger over time and the value of the estate/inheritance may decrease over time.
A reverse mortgage loan usually does not affect eligibility for entitlement programs, such as Medicare or Social Security benefits. However, some needs based government benefits such as Medicaid and Supplemental Security Income (SSI) may be affected by a reverse mortgage loan. You should consult a qualified professional to determine if there would be any impact to your government benefits.
The program is not well understood by most individuals. However, the availability of independent counseling helps.