Pros and Cons of Reverse Mortgage

Pros and Cons of Reverse Mortgages
They are a steady stream of income that lasts
for years. You can convert the equity in your home into a pile of cash without
having to move out.
The money is tax free. Rather than income
earned, a reverse mortgage is considered a loan so the IRS can’t get its sticky
fingers on it. And a reverse mortgage will not affect your Social Security or
Medicare payments.
As for the cons, failing to keep up with the
monthly fees has cost a lot of people their homes. Of course, if they didn’t
pay those bills they’d also face foreclosure with a traditional loan.
The difference is that with traditional loan,
the debt decreases every month. Since there are no mortgage payments with a
reverse mortgage, the loan balance increases every month.
Between the interest and other costs, the debt
may eventually exceed the home’s market value. If you want your children to
inherit the house, they could be stuck with a steep bill.
The good news is you or your estate will never
have to pay a lender more than the market value of the house. The bad news is
Uncle Sam got tired of paying the difference.
Since 2009, reverse-mortgage losses have cost
the Federal Housing Administration reserve fund $12 billion. That’s the same
fund that insures low-income newcomers to the housing market.
Essentially, reverse mortgages were
redistributing wealth from the poor to the predominately middle class.
Beginning in October 2017, new rules require prospective borrowers to make much
higher upfront payments and significantly lowered the amount that can be
borrowed.
“Fairness dictates that future HECM loans do
not adversely impact the overall health of FHA’s insurance fund, which supports
the financing needs of younger, mostly first-time homeowners with traditional
FHA mortgages,’’ HUD Secretary Ben Carson said. “We’re taking needed and
prudent steps to put the HECM program on a more sustainable footing.”
The average reverse mortgage borrower drew 64%
of their equity under the old rules. That will drop to 58%, according to the
Wall Street Journal.


All that makes reverse mortgages less
attractive, but the offers will keep coming.

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