To be eligible for a reverse mortgage, you must be at least 62 years of age, own your home, and be living in it as your primary residence. The amount you are eligible for depends on your age, interest rates and the value of your home. Most reverse mortgages are set up for seniors to receive monthly payments.
Advantages:
- Fairly easy to qualify since credit scores and income are not part of the qualification process.
- Enables conversion of part of the equity in a home into tax-free income.
- No monthly payment is due from the homeowner unless he or she dies, moves or sells the home. At that time, the loan is due in full, along with interest and fees.
Disadvantages:
- Reverse mortgages may seem like "free money" but in fact, they are quite expensive! The closing costs are high and origination fees are double what they are for conventional mortgages and mortgage insurance.
- For those who depend on Medicaid or other state or federal programs, like Supplemental Security Income (SSI), a reverse mortgage payment may affect eligibility.
- A reverse mortgage is an attractive vehicle for a fraudster, so be very skeptical of using a reverse mortgage as an investment strategy.
Finally, remember the general rule of thumb is "if you don't understand it, don't do it!" Before you make any final decision, make sure you seek the advice of family, a financial advisor or a trusted and knowledgeable friend.
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