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.

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