What are the advantages and disadvantages of a reverse mortgage?

A reverse mortgage is a type of loan available to homeowners age 62 and older in Washington that allows them to convert some of their home equity into cash. This type of loan can be used to supplement Social Security and other retirement income sources, make repairs to the home, and more. While reverse mortgages can be a useful financial tool, they come with both advantages and disadvantages. One of the main advantages of a reverse mortgage is that it can provide a steady stream of income without having to make any payments towards the loan. This means that the borrower does not have to worry about making a payment each month and can instead use the loan proceeds as they choose. Additionally, the borrower does not need to worry about outliving their loan; the loan is only due when the borrower no longer lives in the home, or if the home is sold. However, there are some disadvantages to a reverse mortgage. Since the loan proceeds are not taxed, any money taken out as income is added to the borrower’s total income for the year, which can reduce Social Security and other retirement benefits. Additionally, the borrower’s possibly limited income can mean that their Home Equity Conversion Mortgage (HECM) loan will have a higher interest rate. Finally, reverse mortgages do come with some fees, including an origination fee, closing costs, and mortgage insurance; buyers should take these into account when considering their loan options. Ultimately, reverse mortgages can be useful financial tools as long as potential borrowers understand the associated risks and understand the limitations that come with this type of loan. Before taking out a reverse mortgage, borrowers should speak with a qualified financial advisor to ensure they are making an informed decision.

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