The Pros and Cons of a Reverse Mortgage

The Pros and Cons of a Reverse Mortgage.

Over the past 10 years, the real estate market has grown tremendously. Within this ten year growth spurt many real estate lenders, investors, and financiers developed creative financing programs for borrowers. One of the Mortgage programs that are becoming more popular is the Reverse Mortgage. In this paper I will define Reverse Mortgages and identify the pros and cons of such a program.

A Reverse Mortgage is a unique loan program that enables homeowners that are age 62 and older to use their equity without creating a monthly payment obligation. Thus, the reverse mortgage program enables seniors that may be "real estate rich and cash poor" to unlock the financial potential in their homes, and let their homes work for the reverse mortgage does not become payable until the senior homeowner no longer occupies the property as his primary residence. At that time, the outstanding principle and the accrued interest become due. Typically, the loan is paid off with the proceeds of the sale of the home from the borrower's estate. However, the borrower's estate/family may decide to refinance the loan and retain the property. Any proceeds in excess of the amount owed to the lender belong to the borrower or the borrower's estate. Additionally, the reverse mortgage has no income or credit requirements to qualify.

There are several benefits associated with the reverse mortgage. First, there are no income or credit requirements when qualifying for this loan. Second, the money received from this loan is not taxable as income. Third, the borrower has no repayment obligations until the property is no longer his residence. Thus, the borrower may live in the property until his death without ever making a payment back on the loan. Another significant benefit of this loan is the security of knowing that reverse mortgages are fully insured under the federal government's Federal Housing Administration's mortgage insurance program. The borrower will not be taxed on the principle received from the reverse mortgage because this is a loan and therefore is not taxable as income.

Another benefit of a reverse