A reverse mortgage is a type of loan option designed especially for homeowners aged 62 and above to provide them a comfortable retirement. Though they are not required to make monthly payments to creditors, they are expected to pay their property taxes and other dues regularly. It involves various advantages and disadvantages and they are discussed in the following section.

1. Advantages of reverse mortgage

The most important advantage of this type of mortgage is that homeowners can retain their ownership rights of their home and continue residing. Similarly, like any other mortgage, the debtors are expected to fulfill loan obligations and stay updated in terms of payment of property taxes, maintenance, any applicable homeowners’ association fees, and insurance.

Secondly, debtors can choose any one or a combination of various options such as accessing a large sum of funds, or a steady flow of monthly advances for a fixed period. Debtors who opt for a fixed-rate mortgage will receive a single payment of a huge sum of money, whereas adjustable-rate debtors can enjoy other payment options.

Thirdly, the funds obtained against the reverse mortgage loan can be used to pay an existing mortgage on the home of the debtor. While a lien on their home will still exist for the dues of this type of mortgage, debtors will not be required to pay the monthly charges of the principal and interest amount of the mortgage as long as they live in the home. They are still required to pay their property taxes and other expenses associated with their homes such as maintenance and insurance regularly.

Fourthly, if the value of the home increases in the future, debtors can choose to refinance their mortgage to get access to higher loan proceedings.

Fifthly, a reverse mortgage generally does not impact benefits such as Medicare or Social Security benefits. However, it is advised that one should take the help of a financial consultant to determine whether there are any financial implications in getting this type of mortgage.

Sixthly, this type of mortgage is a non-recourse loan which means that neither the debtor nor their heirs are liable to pay any amount of mortgage that exceeds the value of their home, after the repayment of the loan.

Lastly, once the loan is repaid, the remaining equity will belong to the debtors and their heirs.

2. Disadvantages of a reverse mortgage

One of the greatest disadvantages of a reverse mortgage is that the fees might be higher in comparison to a traditional one.

Besides, this type of mortgage can become outstanding and therefore should be repaid on the occurrence of events such as passing away of the last surviving borrower or the debtor vacating the property for more than 12 months due to medical reasons or six months for non-medical reasons, or the home is no longer the principal residence of the debtor. The loan will also become outstanding if the homeowner fails to meet the loan obligations such as updated payment of property taxes, insurance and maintenance fees of the properties and the homeowner’s association fee.

While a reverse mortgage offers various benefits to retirees, it might cause certain disadvantages to the lenders as well.