Advantages of Reverse Mortgages

• Many relatively poor people have significant equity locked up in their homes. Obtaining a reverse mortgage allows them to pay their living costs for an extended period of time without requiring them to get another job or leave their home.
• Unlike traditional home equity loans, a reverse mortgage does not require any payments until after the homeowner has moved or passed away.
• Since reverse mortgage income is in the form of a loan, it typically comes tax-free.
• Even if you live much longer than expected you can never owe more than the value of your home. Frenchwoman Jeanne Calmet, who received a reverse mortgage, lived to the age of 121.

Disadvantages of Reverse Mortgage Loans

• The home is not likely to be passed on to the homeowner’s heirs.
• Reverse mortgages have a relatively high closing cost – nearing 7% in some cases (or over 4X the typical closing costs of a regular mortgage). If you do not plan on staying in your home for at least 5 years a reverse mortgage generally is not recommended.
• Many old people do not adequately maintain their homes, this lack of maintenance causes many homes to lose equity. If you are the type of person who will maintain your home well you still get similar fees and rates to a person who does not.
• Although reverse mortgages proceeds provide tax-free income, that income may affect your ability to get other “need based” public benefits, such as Supplemental Social Security Income (SSI), Medicaid, and Medi-Cal benefits.
• There are a wide array of reverse mortgage options. Adding to that complexity, some lenders are nefarious. Ensure you receive counseling and consider your options before signing off on a reverse mortgage.

Applicants for a reverse mortgage…

• Must be at least 62 years of age.
• Must dwell in the home as their primary residence.
• Must have their tradition mortgage paid off (or very close to paid off). If your first or second mortgage is not paid off a portion of the reverse mortgage is applied toward paying off the original loan.

Here are a couple additional requirements and caveats

• A HUD approved counseling agency must provide counseling to a prospective borrower prior to applying for a reverse mortgage.
• Mobile homes are generally not eligible, though some duplexes may be.