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Reverse mortgage pros and cons Print E-mail
Every financial program or instrument has certain pros and cons associated with it. Also, the pros and cons will vary from person to person and is not the same throughout. That is why it is said that one needs to weigh them and see how each program suits the individual needs. One of the pros for reverse mortgage is that it provides a cash flow opportunity for senior citizens by using illiquid assets like property which they could not have used in any other way. This additional cash can be used in any way they deem fit, can be invested in some interest earning instrument or spent as required. Thus, this additional cash flow helps them maintain their lifestyle that they might want to lead. This amount can even help them meet unexpected expenditures or even afford a few luxuries that they always dreamt of having. The greatest of the pros has to be that they get to stay at their home. This can prove to be a huge benefit, both financially as well as emotionally as it has been seen that senior citizens do not like leaving their home that easily. Alternative to reverse mortgage include renting out the property or selling it, both of which necessitate the owners to vacate the property. Another one of the pros is that the liability of the debt can never exceed the value of the property when it is sold. That means that in case of a drop in property value, the difference between the loan amount and the property sale value is borne by the lender. Thus, under no circumstance will the burden be passed on to the heirs of the homeowners. Now coming to the cons, the most important one would be that the owners would lose their home equity to the lender who has given them the reverse mortgage loan. This can be a major setback to people who were hoping to leave something for their children or heir as after their death, the property can be sold of by the lender to recover the debt amount. Also, the children or the heir should be supportive of this fact and be willing to sacrifice the property in order for their parents to have a better lifestyle. Another one of the cons is that the interest rates levied on the reverse mortgage loans are much higher than normal mortgage loans. So the debt is considerably higher in case of reverse mortgage loans as the interest accrued is much higher. Thus we discussed the reverse mortgage pros and cons. However, as we can see, it is ultimately the choice of the individual whether to go for a reverse mortgage.


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