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Pros and Cons of Reverse Mortgages

Reverse mortgages have become much more popular over the past few years for retirees in need of a consistent stream of monthly cash flow. However, it's hard to know exactly what to think about reverse mortgages because there's a lot of conflicting information floating around. We've compiled a list of some of the major arguments for both sides.

First we'll present the bad, the cons.

  • Borrowers remain responsible for taxes and repairs. Critics of mortgage loans often point out the odd dynamic between giving up home ownership yet remaining responsible for taxes, insurance, and repairs.
  • High upfront fees. Some lenders charge relatively high upfront fees on reverse mortgages that reduce the monthly payout to the borrower.
  • Medicaid Disqualification. Depending on the homevalue and location, it's possible that the asset created by a reverse mortgage could be large enough to disqualify senior citizens from participating the Medicaid program.

And now for the other side of the coin, the pros of reverse mortgages.

  • Converts equity into a paycheck. The most obvious benefit of a reverse mortgage is the conversion of equity into a predictable income stream. It sure beats credit card debt!
  • No fishy terms. Reputable reverse mortgage companies won't have anything deceptive in the contract terms. This means the homeowner will know upfront how much they will owe and how much equity they're receiving in cash.
  • Easy to qualify. This loan product is based on assets rather than credit or repayment ability so in turn it is fairly easy to qualify for a reverse mortgage.

As with any major decision, we recommend discussing the matter with a financial professional and your family before deciding if a reverse mortgage is the right solution for you.

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