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One of the hot financial topics facing seniors is whether or not to consider a reverse mortgage in the later stages of life. A reverse mortgage is a legitimate financial tool that is a great fit in certain situations, but it also has drawbacks that should be considered before a decision is made. Here are some of the pros and cons associated with reverse mortgages:

The Pros

- No More Mortgage Payments- One of the biggest worries for many seniors is figuring out how to pay the mortgage and other living expenses on a small fixed income. Many homeowners end up selling their home and downsizing, something that they would prefer to avoid if possible. As long as the homeowner lives in the home, there will never be another mortgage payment.

- Almost anyone can qualify- Unlike a conventional mortgage or the refinancing of a mortgage loan – it’s possible to get a reverse mortgage without being subject to income or credit qualifications. This is because a lender isn’t counting on the homeowner to make timely payments, so their credit history is largely irrelevant.

- The Homeowner receives an income stream – The proceeds received as a result of the reverse mortgage are not taxable to the homeowner and the money can be used for anything the homeowner desires. Some use the money to upgrade the home while others travel, pay off debt, or contribute to education expenses for their grandchildren.

The Cons

- Reverse Mortgages Are Expensive- Most homeowners that look into a reverse mortgage as an option walk away when they see the cost of getting the loan going. Like most mortgage-related loans, reverse mortgages have an origination fee and a mortgage-insurance component. These costs either have to be paid upfront or they get lumped into the loan balance, but either way they are substantial. The fees and insurance values are based on the lesser of the lending limit on the home or the home’s appraised value. Fees can exceed 3% for many reverse mortgage scenarios.

- Your Medicaid Could Be Affected- When you apply for a reverse mortgage, you can choose to take your payments monthly, annually, or in a lump sum. Keep in mind that the lump sum option could affect your Medicaid eligibility and make it difficult to qualify for other programs because of the large amount of money in your bank account.

- Your Money Will Attract All Types of People and Opportunities: Many seniors that come into money are targeted for investment ideas that may not be appropriate for them. You should be careful in how you invest your money at any age, but seniors especially should make sure that they only take financial and investment advice from someone they trust and who has their best interests in mind.

Applying for a reverse mortgage is a decision that should not be taken lightly. They are a great financial tool for some, but there are plenty of homeowners who should consider other options first. Work hard to find a professional who you can trust to guide you through this decision and make sure that a reverse mortgage is appropriate for you.