Considering Reverse Mortgage Pros and Cons


The financial strain of retirement can be frustrating. Often, you have to calculate every penny you spend to stay on track. If you want more of a financial buffer to help you relieve that pressure, tapping into the value of your home is one way to get that buffer. However, doing so with a traditional home mortgage is not the only available solution. You could also opt for a reverse mortgage, as long as you understand the pros and cons before applying.

Design via Mimi & Hill, Photos by @tonideiscreative

How a Reverse Mortgage is Defined

A reverse mortgage is a defined as a home loan that pays you. You become potentially eligible for it when you reach age 62. It is a loan structure originally established specifically for those who are struggling during retirement. The biggest difference between it and a traditional loan is you do not have to stick to a specific repayment schedule. Nor do you have to repay any part of the loan early on.

Design via Mimi & Hill, Photos by @tonideiscreative

Reverse Mortgage Pro: You Choose How You Are Paid

One of the biggest pros of a reverse mortgage other than the lack of a set repayment schedule is the ability to select how to receive your money. A traditional loan typically pays out a lump sum you must repay over time. With a reverse mortgage you can opt for a lump sum, but you also have alternatives. For example, you can draw on your available funds only when you need to as a home equity line of credit. You also have to option to receive monthly installments for an extended period. That option essentially helps you replace the paychecks you lost when you retired, in a sense.

Design via Mimi & Hill, Photos by @tonideiscreative

Reverse Mortgage Pro:  You Spend the Money However You Wish (Mostly)

Freedom to choose how you spend your money is almost definitely important to you. When considering the pros and cons of reverse mortgage application, you should know you can spend the funds however you want for the most part. The only minor stipulations are you have to pay off any traditional loan balance you may have with reverse mortgage funds and some fees are deducted up front when you sign the loan agreement. That means you can use the money for entertainment, monthly essentials, unexpected bills or any other purposes you wish.

Reverse Mortgage Pro: You Cannot Lose Your Home as Easily

A traditional mortgage comes with some risks. One of the biggest is you cannot miss payments. If you do, you are at risk of eviction from your home. A reverse mortgage is designed to actually encourage you to stay in your home. With no payment schedule, you cannot miss anything. Therefore, that eviction risk does not exist.

Design via Mimi & Hill, Photos by @tonideiscreative

Reverse Mortgage Con: Some Properties Do Not Qualify

One potential con to be aware of before applying for a reverse mortgage is not every property qualifies. To qualify, the property must be cared for and have enough equity to be worth borrowing against. It must also be your primary home. Additionally, certain types of buildings cannot qualify. For example, if you own a large apartment complex you cannot take out a reverse mortgage on it. However, a home with four or fewer apartments may meet qualification standards.

Reverse Mortgage Con: You Are Obligated to Live in One Place for Years

Another potential con of a reverse mortgage is it somewhat obligates you to remain in your home for years. Technically, you can pay the loan off early if you intend to move. However, you may incur processing fees. Of course, you are still allowed to go on vacations when you have a reverse mortgage, but you cannot switch primary residences.

Putting it All Together to Decide if a Reverse Mortgage is Right for You

There are a lot of pros and cons to examine before applying for a reverse mortgage. You have to weigh all the benefits and potential drawbacks carefully. If necessary, talk to a reverse mortgage counselor to get input on aspects of the process that still confuse you. Then you can make a fully informed decision. Thanks to for contributing!


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