Pros and Cons of a Reverse Mortgage (HECM)

A reverse mortgage or Home Equity Conversion Mortgage (HECM) makes part of your home’s equity available for you to obtain non-taxable cash inflows without paying having mortgage payments every month.

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Pros of a Reverse Mortgage (HECM)

  • Your name remains on the Home Title
  • Money is accessible on-demand with no monthly loan payments
  • At any point, the loan may be paid off by the borrower
  • No more mortgage payments
  • Cash flow improves
  • Your line of credit can’t be cut off by the lender if your home’s value falls
  • You have varying options for how you will receive your money
  • After selling your home, you never owe more than your principle or home value and you get to keep your remaining equity
  • Less out-of-pocket expenses: ongoing fees and closing costs are financed within the loan
  • Income generated from loan proceeds is largely non-taxable

 

Cons of a Reverse Mortgage (HECM)

  • There is a lien on the home when it is inherited
  • Closing costs are higher compared to traditional mortgages
  • Accumulation of interest causes the loan balance (debt) to increase over time
  • Home and property must be  maintained according to FHA specifications and HUD requirements must be retained
  • Needs-based government program (i.e. Medicaid or SSI) eligibility may be affected