Weigh the pros and cons of reverse mortgages

What if you didn’t have to make a mortgage payment each month? Would that make things much easier and give you some breathing room?

If you own your home and have significant equity, you may very well be able to go with a reverse mortgage.

A reverse mortgage is a type of loan designed for people aged 62 and older that allows them to access the equity in their home without having to sell it or make monthly payments.

At the closing of this loan, homeowners can borrow money against the value of their home. It normally is a lump sum at the closing. Then 12 months later, they can receive another lump sum and/or set up a monthly disbursement, or just set it up to have a line of credit to tap into when they need to.

The borrower must be 62 years of age or older, and the home must be the borrower’s primary residence. There must be sufficient equity in the home.

Backed by the federal government, the loan is an FHA home equity conversion mortgage. Safeguards have been set up to protect consumers. Homeowners have a safe way to have access to their built-up equity and be able to stay in their homes.

These loans are non-recourse, meaning the borrowers won’t owe more than the home’s value at the time of repayment, even if the loan balance exceeds it. The upfront and monthly mortgage insurance charged protects the consumer.

One of the benefits of these loans is that they provide financial flexibility for retirees. Another benefit is there are not any principal and interest payments to make. And thirdly, the borrowers retain ownership of their home.

One drawback would be that the loan balance grows over time, reducing the home equity. However, the line of credit does increase each month when not used. Another negative would be that the heirs may inherit less equity in the home.

Fees and interest may be higher than traditional loans. Also, the borrowers must maintain the home, and stay current on property taxes and homeowners insurance.

A government-approved counseling class going over the specifics of the loan is completed on the telephone to be sure the borrower understands what they are signing and agreeing to.

Reverse mortgages can be a great financial option, but they may not be for everyone. It is essential to weigh the pros and cons, and consider alternatives. It is wise to consult with a trusted mortgage broker to go over all of the available options.