Forbes: Borrowers Should Keep These Reverse Mortgage Pros and Cons in Mind

For a senior who is looking for additional cash flow in retirement, looking at the potential options presented by a reverse mortgage loan can certainly make sense. However, borrowers are advised to keep a certain set of pros and cons in mind should they pursue the loan category beyond simple curiosity, according to a new column published by Forbes.

Diving into the details, Forbes lays out a series of five potential benefits and detriments, respectively, that someone may want to be thinking about before deciding to get a reverse mortgage. Among the potential “pros,” Forbes columnists Casey Bond and Mike Cetera explain that a reverse mortgage can help secure your retirement; it can allow you to stay in your home; will allow a borrower to pay off an existing home loan; can minimize tax liability; and that a borrower can be protected should a loan balance threaten to overtake a home’s value.

“Reverse mortgages are ideal for retirees who don’t have a lot of cash savings or investments but do have a lot of wealth built up in their homes,” the pair writes about the potential for securing a retirement. “A reverse mortgage allows you to turn an otherwise illiquid asset into cash that you can use to cover expenses in retirement.”

The aging in place component of the argument in favor of reverse mortgages is also very attractive for a senior who does not wish to move out of their home, since a reverse mortgage can allow a senior to remain in their home while still accessing cash from the home’s equity.

In the column of “cons,” the duo describes that a reverse mortgage borrower can still lose their home to foreclosure; heirs could inherit less than they otherwise would if the senior did not get a reverse mortgage; there can be a high cost associated with getting a reverse mortgage; other retirement benefits could be impacted by a reverse mortgage; and the product category is a very complicated one.

“You might not have to make payments with a reverse mortgage, but there are still plenty of expenses associated with one,” the pair writes about upfront costs. “Not only do you have to keep up on your taxes, insurance and HOA fees, but you also have to pay an upfront insurance premium. Usually, this is 2% of your home’s appraised value. You’ll also pay origination fees at closing. You do have the option of rolling these costs into your loan balance, but that means you receive less money.”

The amount of complexity could also make the prospect of a reverse mortgage difficult to understand, the article says, and the potential ways in which it could interact with existing retirement benefits should be considered.

“A reverse mortgage may not be considered income for tax purposes, but it could impact your ability to qualify for other need-based government programs such as Medicaid or Supplemental Security Income (SSI),” the pair writes about reverse mortgages’ potential interaction with other benefits. “It’s a good idea to discuss this with a benefits specialist to make sure your eligibility won’t be compromised.”

Read the article at Forbes.

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