If ‘The Fonz’ endorses something, then it must be good. Right?
Reverse mortgages are marketed to seniors undergoing economic dissidence as a means to aid them in securing or stabilizing their aforementioned economic status.
However, as the DailyFinance article on the subject notes, they have definite pros and cons.
Pros: Home Equity Conversion Mortgages (HECMs), the most popular RM available, are federally insures and offer some borrower protections; situationally, they can be converted into cash (lump sum, monthly payment, line of credit, or a combination); no income/credit requirements, no monthly payment; if the sale price of the home drops below the loan amount, the FHA pays the lender the difference; lender pays the homeowner and the RM balance rises as a result (interest and fees), lenders get repaid when the owner moves or dies and the home is sold
Cons: RM’s are very expensive, usually very complicated, and capable of being abused – they frequently boast hefty fees as high as 5% of the home’s value, with FHA charges a mortgage insurance premium fee up-front, as well as ongoing fees (some of these are countered by RMs with lower fees, but contrarily higher interest rates with more borrowing restrictions); up-front payment requirements for 3rd-party counseling; RMs also comes due if the owner fails to pay property taxes and homeowners insurance, or make necessary repairs
Photo courtesy of Max Klingensmith.