THE GOOD
Instead of having to sell your home in order to liquidate your asset, you can keep the property and still get cash out of it. This means you don’t have to worry about potentially downsizing or getting priced out of your neighborhood if you had to move.
A key path to building generational wealth is through Homeownership. However, reverse mortgages usually require your heirs to sell the home to repay the debt. Heirs will need to pay the full loan balance or 95% of the home’s appraised value, whichever is less.
Not to mention, a reverse mortgage eats away at your home’s equity. By the time it needs to be paid off, there may not even be any equity to be left to your heirs.
In some cases, the value of your home could end up being less than the total amount owed on the reverse mortgage. This can happen if home prices fall, for example. If this occurs, your heirs don’t have to worry about paying the balance.
THE BAD
A key path to building generational wealth is through Homeownership. However, reverse mortgages usually require your heirs to sell the home to repay the debt. Heirs will need to pay the full loan balance or 95% of the home’s appraised value, whichever is less.
Not to mention, a reverse mortgage eats away at your home’s equity. By the time it needs to be paid off, there may not even be any equity to be left to your heirs.
You might not have to make payments with a reverse mortgage, but there are still plenty of expenses associated with one. Not only do you have to keep up on your taxes, insurance and HOA fees, but you also have to pay an upfront insurance premium. Usually, this is 2% of your home’s appraised value. You’ll also pay origination fees at closing. You do have the option of rolling these costs into your loan balance, but that means you receive less money.
In order to qualify for a reverse mortgage, you have to be able to afford your property taxes, homeowners insurance, HOA fees and other costs associated with owning your home. You’re also required to live inside the home as your principal residence for most of the year. If at any point during the loan period you become delinquent on these expenses, or spend the majority of the year living outside the property, you could default on the reverse mortgage and lose your home to foreclosure.