What You Should Know
There are both benefits and risks to taking out a reverse mortgage on your home. For example, in order to secure the loan, your home must be your primary residence. If you fail to pay property taxes or homeowners insurance, or to maintain your home in accordance with FHA standards, the loan may be subject to actions that can trigger foreclosure. And monies received from a reverse mortgage, while not considered income, may impact federal and state taxes or government benefits, including Medicaid. Listed below are additional potential risks and benefits of reverse mortgage.
- Pay off existing mortgage, eliminating monthly payments
- Remain in your home
- Access proceeds in lump sum, line of credit, or monthly advance
- Proceeds not taxable
- Interest rates less than alternatives
- Heirs entitled to remaining home equity after payment of loan, following sale of home
- Heirs not responsible for loan amount greater than home equity
- Details and requirements may be difficult to understand
- Higher loan fees*
- Proceeds paid to loan holder and accrued interest lower value of inheritance
- May impact eligibility for Medicaid and other needs-based government programs
*Borrowers are assessed an FHA mortgage insurance premium equal to .5% of the current mortgage balance annually. They are also assessed a one time Upfront Mortgage Insurance Premium (UFMIP) and loan origination fee. The UFMIP is a percentage of the Max Claim Amount (MCA), which is determined by either the value of your home, the FHA’s current maximum lending limit, or the purchase price (for new homes only,) whichever amount is the least.