A reverse mortgage loan is not for everyone. We can provide detailed loan scenarios to you (with your client’s permission) to help reach a decision that is aligned with the interest of all parties. We are upfront with all our clients about the advantages and disadvantages of a reverse mortgage.
Reverse mortgages provide many advantages for the senior borrower. Here is a short list of just a few:
Proceeds received from a reverse mortgage typically do not affect Social Security or Medicare.
Provides access to a portion of their home's value without the requirement of monthly mortgage payments. Borrowers must continue to meet ongoing property obligations such as homeowner’s insurance, property tax payments and home maintenance costs.
Could allow senior to purchase a new home with no monthly principal and interest mortgage payments.
Could provide a source of cash flow while borrower allows their investments to recover from market losses (they should consult with their financial advisor).
Improves a senior’s standard of living or allows them to live out their non-working years with fewer financial worries.
Pays off existing mortgage freeing up monthly cash flow which would have been committed to ongoing mortgage payments. With the reverse mortgage, there are no more required monthly principal and interest mortgage payments.
Borrowers are required to live in their home as their primary residence, continue making payments for homeowner’s insurance and property tax charges and maintain the property per HUD requirements.
Allows the senior to maintain their independence while living in their own home.
Provides money for in-home health care or medical expenses.
Potential foreclosure of the home if the borrower does not meet the ongoing obligations of the loan such as paying property taxes, homeowner’s insurance or other required property charges, and must maintain the property per HUD requirements.
Uses equity that could be passed on to the estate or children.
The loan balance increases and the equity will decrease over time.
May affect eligibility for needs-based programs such as Medicaid (they should consult with their benefit agency).
If no home interest is paid out of pocket - for those itemizing tax deductions - a reverse mortgage can eliminate that tax deduction. However, if the homeowner pays the upfront fees and the accruing interest, the tax deduction may be available to them in the year the interest is paid. Not all interest on a reverse mortgage is tax-deductible and to the extent that it is, such deduction is not available until the loan is partially or fully repaid. The borrower should consult their tax professional.
There are closing costs and insurance that apply, so borrowers should keep in mind that generally, the longer you keep a reverse mortgage loan, the lower the total annual cost rate will be.
A Potential Reverse Mortgage Borrower
Substantial home equity with a limited or fixed income.
Wants to maintain or improve lifestyle.
Prefers to access mortgage loan proceeds instead of other accounts or sources which may be taxable.
Wants to remain in home and age in place utilizing a reverse mortgage. Borrowers could be subject to foreclosure for reasons including failure to maintain the property or to pay taxes and insurance.
Home Equity Conversion Mortgages are the only Reverse Mortgages insured by FHA.