Home Equity Conversion Mortgages: Pros and Cons
Are you in your retirement years and looking to gain some cash on the side for home maintenance and maybe paying other expenses? If you foresee that you will be living in your current home for the next several years, then a reverse mortgage may be the solution for you. A “reverse mortgage” is called such because instead of you paying the lender, the lender pays you.
How Does a Reverse Mortgage Work?
The reverse mortgage program works by loaning the homeowner money in the form of a credit line, fixed monthly options, or a combination of the two. The money from this program is tax-free and many be used for any purpose, like buying homecare appliances or planning a vacation. Unlike a traditional
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Once that is settled, the money may be used on whichever way you choose, such as homecare or assisted living, paying off other debts or taxes, and maybe even leisure trips. Some even choose to purchase a new house — one that better suits a downsized family.
What are the pros and cons of availing of this type of loan? Let's look at the following:
Pros
• Credit requirements for a HECM are usually less strict than for standard home equity loans and other lines of credit.
• The borrower’s credit history will not affect interest rates.
• The loan can be kept as long as a borrower stays in the house.
• The amount available through HECM credit line may actually increase over time due to changes in interest rates.
• The credit line can be a source of extra cash for emergencies.
• You cannot be evicted in your home as long as you maintain the condition of the house and promptly pay your property taxes and insurance.
• When it’s time to pay the reverse mortgage by selling the house, there is no need to for you to repay more than the total value of the property. This is still applicable even if the value of your property goes