5 Reverse Mortgage Professionals And Cons | Private-finance
3. You pay back your existing home loan
There is no need to pay down your home to take out a reverse mortgage. In fact, you can use the proceeds of a reverse mortgage to pay back an existing home loan. This frees up money for other expenses.
4. You have no tax liability
According to the IRS, money you get from a reverse mortgage is considered a loan advance rather than income. That means the funds are not taxed, unlike other retirement income such as distributions from a 401 (k) or IRA.
5. You are protected when the balance exceeds the value of your home
In some cases, the value of your home may be less than the total reverse mortgage amount. This can be the case, for example, when home prices are falling. In this case, your heirs do not have to worry about paying the balance.
Disadvantages of reverse mortgages
So what’s the downside of a reverse mortgage? While it may seem like there are many benefits, there are also some serious risks to consider.
1. You could lose your home in foreclosure
To qualify for a reverse mortgage, you must be able to afford your property taxes, home insurance, HOA fees, and other home-related costs. You will also need to live in the apartment as your primary residence for most of the year.