Reverse Mortgage (HECM)

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Reverse MortgageBefore beginning a Reverse Mortgage it is important to know what exactly a Reverse Mortgage is as well as the pros and cons that come along with getting one. 

A Reverse Mortgage is a unique home loan type that allows you to transform part of the equity of your home into cash in your pocket. This is essentially a way of making the equity that you have built up through years of mortgage payment repay you in the form of cash. This is different from a typical home equity loan though in the fact that you do not have to repay the loan until you no longer use the home as your permanent residence, or you stop meeting the obligations of the mortgage. 

The pros of Reverse Mortgages are numerous and offer great benefits to homeowners:

  1. You have multiple allotment options. You can either make it a monthly plan or have a line of credit 
  2. The owner of the home may stay in the house with no monthly mortgage payments
  3. Those next in line for the home will not be held liable if the payoff balance is exceeding the current value of the home
  4. The same heirs that are not liable for the payoff balance also receive the home equity once the Reverse Mortgage loan is paid off 
  5. Proceeds of the Reverse Mortgage are tax free
  6. Interest rates of Reverse Mortgages are typically lower than comparable options 

Unfortunately as with any loan there are also several cons to consider:

  1. The actual value of the estate may decline as the proceeds are spent over time
  2. The Federal Housing Administration fees are typically higher with Reverse Mortgages than with a traditional mortgage 
  3. Beginning a Reverse Mortgage can affect your consideration for needs based programs such as Medicaid
  4. Reverse Mortgages can often be misunderstood or misinterpreted by people prior to starting with it

While Reverse Mortgages can be tricky and somewhat complicated, they can be an effective plan for people that have a firm grasp of what they are getting in to. As with any such decision of this magnitude be sure to consult your financial advisor prior to making any decision.