Common Pros and Cons of a Reverse Mortgage.
: The reason most people have a reverse mortgage is to eliminate the current monthly mortgage payment on a property. if there is no mortgage on the current property they use the reverse to increase cash flow.
A Reverse Mortgage does not have a monthly payment to the lender. Instead, the lender may make payments to the borrower every month as an annuity payment. Many borrowers decide to receive a lump sum payment at closing of the reverse, this money can spent or saved however the borrower determines.
: You have to remember this money is coming from the available equity in the home. So the more cash taken from the home the less equity will be available upon sale of the home. The reverse is a mortgage on the property and this mortgage will be paid back upon the last borrower leaving the property.
: Since the reverse mortgage eliminates the monthly payment on any current mortgage attached to the property the borrowers tend to have more cash on hand for expenses
: The borrower is still responsible for property tax, insurance, HOA, Condo fees and maintenance on the property. These items are NOT paid by the lender in the reverse mortgage. Forward mortgages usually escrow many of these expenses and the borrowers tend to get use to this option. So, when taking out a reverse the borrower must be aware they are now responsible for making these payments and should set funds aside so that when bills do arrive it is not a shock.
: A reverse it a great tool to extract equity from the home for the borrower to use.
: The reverse is a loan and will have closing cost and fees attached. Since these will be "rolled into" the reverse it is likely many borrowers do not pay anything "out-of-pocket" so it seems like the loan does not cost much to take out. However, the fees attached to the loan can vary greatly and some reverses can be very costly. You should only work with a trusted loan officer and truly understand what is being charged.
In addition to fees the reverse loan tends to be an adjustable rate mortgage with a margin. A lower margin on the loans tend to get the borrower to qualify for more and higher margin reduces the borrowers ability to extract equity. Dealing with margins can get a bit complex but it is an important aspect to consider when choosing the right product.