Pros and Cons of Reverse Mortgage Loans

A Reverse Mortgage Loan may provide the financial freedom that lets you live the retirement you desire, pay off medical bills, make home improvements, or just free up some extra cash. Weighing the advantages  and risks is important before any major decision, so we have highlighted the potential pros and cons of a reverse mortgage loan.

According to HUD, many homeowners ages 62 and older with sufficient equity in their homes may be eligible for a Home Equity Conversion Mortgage (HECM) or more commonly known as a reverse mortgage loan.. Seniors often choose a HECM loan because of the many advantages that fit with their lifestyle. The funds can be received in a lump sum payment, monthly payments, as a line of credit or a combination of these options and homeowners will stay in the comfort of their own home all without making monthly mortgage payments*.

The loan proceeds are tax-free; however it is always best to consult your tax or financial professional. In addition, provided the home is sold to repay the loan, your heirs will not be personally liable if the loan balance exceeds the value of the home.  Any remaining equity will go to your heirs.

Of course, there are potential drawbacks to consider as well. The balance of the reverse mortgage will increase over time and the value of the estate inheritance may decrease as funds are spent. Fees, including the loan origination fee, may be higher than with traditional forward mortgages. HECM fees also include the Initial FHA Mortgage Insurance Premium, as well as a monthly MIP of 0.50%. (Please see chart below for details regarding the initial MIP.) Needs-based government programs such as Medicaid may be affected by HECM loan proceeds.  Therefore, you are encouraged to consult your trusted financial adviser and appropriate government agencies for any effect on taxes or government benefits.

Pros of Reverse Mortgage Loan

  • You can receive the funds in a lump-sum payment, monthly payments, as a line of credit or in a combination of these options
  • You can stay in the home without making monthly mortgage payments * See below footnote
  • Loan proceeds are tax-free
  • Your heirs are not personally liable if payoff balance exceeds home value
  • Your heirs inherit any remaining equity after paying off the reverse mortgage

Cons of a Reverse Mortgage Loan

  • HECM loan balance increases over time
  • Value of estate inheritance may decrease over time as proceeds are spent
  • Fees can be higher than a traditional mortgage
  • Initial FHA Mortgage Insurance Premium
  • Annual FHA Mortgage Insurance Premium
  • Loan origination fee may be higher than traditional mortgages
  • Although Social Security and Medicare eligibility are not affected by a reverse mortgage loan, needs-based government programs such as Medicaid and S.S.I. can be affected.

The borrower must live in the home as their primary residence, continue to pay required property taxes, homeowners insurance and maintain the home according to Federal Housing Administration requirements.

These materials are not from HUD or FHA and were not approved by HUD or a government agency. The Sender is not in any way affiliated with any organization listed or referenced within this website, including HUD/FHA. The inclusion of various education, information, web links, or materials are not an endorsement of the Sender or any of its employees or business partners. For information directly from HUD/FHA, visit

Reverse Mortgages are neither “approved” nor “endorsed” by the Federal Government. The FHA (Federal Housing Administration) provides certain mortgage insurance for lenders and borrowers in connection with the lender’s HECM loans; the FHA does not lend or originate loans. It is strongly advised that you consult with your family, trusted financial planner or attorney when considering any reverse mortgage loan. These materials are not from HUD (Dept. of Housing and Urban Development) or FHA and were not approved by HUD or a government agency.

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