Reverse Mortgage Pros and Cons

Would you like to learn how to live in your home without paying another mortgage payment in your life? Well that is exactly what a reverse mortgage will allow you to do.


If you are a senior over the age of 62 and are looking for ways that you can reduce your expenses, that this is one of the smartest choices you can make, as long as this type of mortgage works in your favor. For many seniors, this type of mortgage works well for them, however there are many people who do not understand the implications involved, and therefore, often times end up the defaulting on the mortgage because they did not understand all of the prerequisites. This has happened many times, with seniors in Florida claiming the highest rate of defaulting in the nation.

This doesn’t mean that an HECM reverse mortgage, which is backed by the United States government, is not right for you. It only means that you must understand the implications of what you’re getting yourself into, understand how it works, and what happens if you fail to make necessary payments.

What?

You’re probably thinking right now that the whole point of the reverse mortgage was for the bank or lender to pay you. Well, that is true. Once you sign up for a reverse mortgage and you meet all of the necessary requirements, the bank or lender will give you the option of receiving a lump sum payment for the equity in your home, a line of credit for which you can use as you see fit, or monthly payments direct to you which we definitely recommend, or a combination of the three– which a lot of seniors actually prefer because it gives them a lot of flexibility in their finances, which this option is also a wise decision as well.

However, it doesn’t stop there.

Even though the bank or lender is paying you for your equity in the home, you are still required to ensure that you take care of the homeowner’s insurance, as well as any of keeping and maintenance that is required on the home to keep it in a livable situation.

This is the part that many seniors and up getting themselves into trouble, either because they did not understand the full implications because the reverse mortgage lender did not explain fully the circumstances to them, or they just opted to not pay their homeowners insurance. The sad fact of the matter, however, is that home owners insurance premiums have skyrocketed to the point where many people, not just seniors, have been unable to make the payments because the premium skyrocketed 100 to 200%. This has especially been the case in the state of Florida, where the number of defaults have occurred the most. This is the number one reason why seniors often default on their reverse mortgage because within the last 3 to 5 years insurance premiums have gone up and continued to go up.

Before you talk to a reverse mortgage lender, ensure that that lender is qualified by HUD, and also ensure that you speak with a reverse mortgage counselor and your situation before you enter into an agreement with the lender or bank.

Speaking with a reverse mortgage counselor is actually a requirement before getting accepted for an HECM reverse mortgage these days.
Another downfall of this popular loan option, is the fact that many seniors are unable to leave their home to their loved ones as stated in there will because of the reverse mortgage contract. The bank is paying you for the equity in your home, therefore when you die, the bank or lender will own your home. The only way you would still be able to give your home away in your will, is if someone paid off the remaining balance of the mortgage to the lender. If your spouse is still alive and is dwelling in the home, then this does not apply to them, as they can continue living in the home until they die, and then this process would ensue.

So, should you still get this type of mortgage? Honestly, the answer is up to you and depends on your unique situation. This is why it is of the utmost importance that you speak with a HUD approved reverse mortgage counselor as soon as possible so that they can analyze your situation, give you the pros and cons, and help you decide on whether or not this loan option will meet your current and future needs.