There are many borrowers who think reverse mortgage is a financial product that is too good to be true. Indeed reverse mortgage offers a very flexible mortgage loan plan. You can maintain or enhance your standard of living if you opt for reverse mortgage and you needn’t worry about your life after retirement.

Just as reverse mortgage has several advantages, there are certain disadvantages too. However, the advantages far outweigh the disadvantages. The advantages and disadvantages of reverse mortgage are given below.

Advantages of reverse mortgage -

1. Disbursements are tax free: The proceeds of reverse mortgage are tax free. Since the homeowner receives the disbursement as lump sum or additional income that is fixed, the proceeds are not taxable.

2. You don’t pay more than you owe: You can be rest assured that you don’t have to pay more than what you actually owe. The main reason is the repayment amount will not exceed the value of your property.

3. Payment options are flexible: The disbursements can be made in any form convenient to you. You can receive it as lump sum, credit line, annuity or a combination of these.

4. Home ownership: You enjoy the provision of staying in your own house. Simultaneously, you retain your home ownership.

5. Secured place to live: You have a secured place to reside. You continue to live till the time you don’t plan to shift elsewhere.

6. Backed by the Fed: The HECMs or Home Equity Conversion Mortgages are backed by the Federal government. So, even if the lender is unable to make payments to you, you get the disbursements regularly.

7. No restriction in fund usage: There are no restrictions to fund usage. It is your discretion as to how you will be using the reverse mortgage fund. You can use it for paying for someone’s education in the family, traveling etc.

8. Easy to qualify: You can easily qualify for reverse mortgage. Since you are not required to make monthly payments, your income is not taken into consideration.

9. No default risk: In case of forward mortgage, if you are unable to make payments, there is a fear that you may lose your property or assets. In case of reverse mortgage, you don’t have the fear of losing your assets to the lenders.

Disadvantages of reverse mortgage -

Reverse mortgage may not be the appropriate financial product for you under the following circumstances.

1. If you are planning to shift else where: You qualify for reverse mortgage if you are staying in a house that happens to be your primary residence. If you are planning to move away from your house after a couple of years or months, reverse mortgage may not be suitable for you. The upfront fees will be higher.

2. Very little remains for heirs: It is a well known fact that reverse mortgage takes away equity in your home, if not full at least part of it. Over the years, equity in your house reduces and your debts increase. By the time it is time to repay the loan, you may not be having any equity left in your property. You will have nothing to leave behind for your heirs.

3. If you qualify for low income assistance: Even though, reverse mortgage doesn’t impact your Social Security as well as Medicaid benefits, you may be worried that reverse mortgage may disqualify you for the benefits especially if you qualify for low income assistance.