Who Should Consider the Benefits of a Reverse Mortgage?
Many Floridians planning for retirement consider the Reverse Home Mortgage. In the right situation, the reverse home mortgage can increase a retiree’s financial security and improve their quality of life. Alongside numerous benefits, there are also drawbacks or disadvantages.
Fees: The reverse mortgage is associated with high, upfront fees (closing and insurance costs and origination fees). For a frame of reference, the fees are marginally higher than the costs associated with refinancing. There are options to finance the fees in the reverse mortgage itself to avoid the out of pocket costs.
Interest: The reverse mortgage has no monthly payments. As such, the loan amount grows over time due to accumulating interest. Although the amount owed will never exceed the value of the home.
Limited Access to Cashed Out Equity: If you have a lot of home equity, it can be frustrating that the reverse mortgage only offers access to some of it. The HECM loan limit is currently set at $726,522. The amount borrowed is based on this amount rather than the value of your home, etc.
Complicated Process: The reverse mortgage is a mortgage in reverse. The concept can be challenging to grasp. A traditional mortgage allows borrowers to borrow money upfront and pay the loan down over time. The reverse mortgage does the opposite. You accumulate the loan over time and pay the entire amount back when you (and your spouse, if applicable) are no longer living in the house. Any equity remaining at the time of the sale after the sale is complete and the mortgage balance is paid off, belongs to you. The concept, while not that complex, is foreign to many people and they are uncomfortable approaching it as an actual option.
Like everything, the reverse mortgage has advantages and disadvantages. They will be very beneficial in certain circumstances, but they are not for everyone. Use caution seeking a reverse mortgage if you are now or plan to be on Medicaid or other government benefits programs. The funds from the reverse mortgage could affect your eligibility. Since the reverse mortgage balance is due as soon as the home is no longer your primary residence, this strategy isn’t a good option if there are plans to move.