PROS & CONS OF REVERSE MORTGAGES

These loans come with onerous expenses, but they do have some redeeming value. Read about the pros and cons, and check out the link provided below.

1. You can choose how to receive the money: fixed monthly payment, lump sum, line of credit or some combination of these options.

2. Income from reverse mortgage generally does not affect Social Security or Medicare benefits.

3. Debt isn't passed on to heirs. Loan balance is deducted from proceeds of home sale.

4. If you "outlive the loan," meaning you receive more in payments than your home is worth, you will never owe more than the value of the home, according to the Federal Trade Commission, or FTC.

5. Loan advances are generally not taxable.

6. Most loans do not have income requirements.

7. Homeowner retains title to home.

8. No payments are due until last surviving borrower dies, sells the home or no longer lives in home as primary residence.

9. HECM programs allow borrower to live in nursing home or other medical facility for up to 12 months before loan becomes due.

10. After the home is sold and the loan and fees are paid to the lender, any remaining equity in the home belongs to you or your heirs.

The downsides of reverse mortgages

1. Reverse mortgage proceeds could impact Medicaid eligibility.

2. Borrowers must be at least 62 years old to qualify.

3. Lenders generally charge origination fees and other closing costs that are usually steep.

4. Lenders require free debt counseling prior to loan application.

5. Lenders may charge servicing fees during term of the mortgage.

6. Debt increases over time as interest is charged to outstanding balance of loan.

7. Most loans have variable interest rates tied to short-term indexes, such as the one-year Treasury bill or LIBOR.

8. As home equity is used up, fewer assets are available to leave to heirs.

9. Interest is not tax deductible until the loan is paid off.

10. Borrowers are responsible for paying taxes, homeowners insurance, maintenance costs and other expenses. If they don't, the loan may become due.

DO YOUR HOMEWORK. Determine what type of reverse mortgage you might need. Do you need a one-time payment to help pay for home improvements or property taxes? Consider a single-purpose reverse mortgage. Call the Area Agencies on Aging to explore this option at 1-800-677-1116. Ask for information about loan programs for home repairs or improvements or for property tax postponement. To find an agency near you, visit www.eldercare.gov. Do you need money for another purpose altogether? Do as much homework as possible before contacting an HECM or proprietary lender.
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