Pros and cons of reverse mortgages

Reverse mortgages are receiving a lot of attention lately. Not only are they seeing increased popularity among cash-strapped elderly homeowners, but they are currently undergoing congressional scrutiny for their feasibility, practicality and, in some cases, their legitimacy. Reverse mortgages are, by and large, legitimate deals although there are some concerns about their possible use as a tool to prey on the elderly poor who have much-needed money tied up in home equity. While Congress sorts out the matter and identifies any necessary regulatory tweaking, consumers are left to fend for themselves. So before jumping on the reverse mortgage bandwagon, it’s important to know the pros and cons.

Pros
Reverse mortgages offer flexible payout options, including lump sum, equity line or monthly payments. A person can choose the best option to fit their financial picture, or a mixed combination of the three options.
Anyone at least 62 years of age may be approved for a reverse mortgage, dependent upon factors like the applicant’s age, current interest rates, and the amount of home equity. Access to home equity can supplement social security income or help pay for costly medical expenses.

Cons
Fees, interest rates and closing costs are often higher with reverse mortgage loans. Many people view their estate as their legend, a parting gift they can leave for loved ones, so borrowing against their home has emotional repercussions as well. Furthermore, assuming the debt is not paid off before the homeowner’s death, surviving family members will have a more complicated time settling the estate. If the home stalls on the real estate market or is “underwater,” meaning more is owed on the home than it is worth, surviving family members may choose to let it go into foreclosure.

Options
Senior citizens may consider a simple refinance of all or a portion of their home. This allows access to cash with lower upfront fees, but does require mortgage repayment with interest, taxes and insurance. Seniors may prefer to avoid the burden of a monthly payment, even if it will be relatively low. Either way, professional consultation from an independent financial advisor should be sought first before making a decision.