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Pros and Cons of a Reverse Mortgage: Should you ever pay it off and can you ever own the house?

Reverse Mortgage Arizona is considered a good package for retirees who need more cash to finance their retirement living. Unlike the conventional mortgage, a reverse mortgage works more as cash-out refinancing. It allows the property owners who have attained the age of 62 and above to convert their current primary residence into spendable cash. 

Generally, the reverse mortgage Arizona is insured through the Federal Housing Administration program. This means that borrowers will pay an insurance premium. To that effect, if the borrower fails to repay the amount, the FHA uses accumulated insurance premiums to repay the outstanding balances.

Pros and Cons of Reverse Mortgage

Every mortgage option comes with its own advantages and disadvantages. Let us look at the advantages and the disadvantages associated with the reverse mortgage:

  • Boosts Cash

Seniors will most likely experience a significant drop in earnings over their retirement years. Thus, chances are that the seniors may struggle to pay for their medical bills, travel and entertainment costs, and other daily expenses. The reverse mortgage gives the seniors the much-needed boost to their finances.

  • Tap Equity in your Home Without Having to Sell

With a reverse mortgage, the seniors get a chance to tap on their home equity without having to move, leave alone selling the property. Seniors want to continue living in the community where they have been living even before retirement. The reverse mortgage gives a good chance to live near their good old friends.


  • Money From reverse mortgage is not Taxable

The proceeds from a reverse mortgage are not considered income. Thus, even if the lender pays you, you do not need to declare the amount when declaring your taxable income. Thus, seniors can enjoy great savings on their home equity since it is none taxable income.

  • Costs Less Compared to moving

The cost of taking a reverse mortgage may be considerably lower than the cost of selling a house and moving to a different neighborhood. Further, reverse mortgage applications and approvals will take considerably less time compared to listing a home for sale, finding the interested buyers, and closing. Thus, a reverse mortgage is considered a cheaper and faster option for financing your retirement.

  • You Continue to Own the Home

Reverse mortgages can be paid off by the borrower. Typically, the reverse mortgage ends when the borrower passes on, moves, or has sold the property. Where the borrower passes on, the heirs will have the option of selling the property and repaying the property, and keep any equity above the loan balance.

We have looked at the positive side of taking a reverse mortgage. Now, we shift our attention to the cons of taking a reverse mortgage.

  • Reverse Financing is not Free

A reverse mortgage, like the other mortgages, comes with some associated costs. For instance, the borrowers will incur the lender’s fee, an FHA insurance charge, and the closing costs. These costs will add to the loan balance.

  • The borrower will Pay Interest Rate

The reverse mortgage is structured such that the borrower will choose between paying the adjustable interest rate or the fixed interest rate. If you want to pay the fixed rate, the amount of equity is smaller compared to the reverse mortgage with an adjustable interest rate.

  • Foreclosure

The reverse mortgages do not attract monthly repayments for the principal amount or the interest accumulated. This may give the indication that there is no foreclosure possible, which is a false argument. However, the reality is that the seniors can be foreclosed if they fail to meet the property taxes, ensure property maintenance, pr fail to pay the property insurance.

Who Qualifies for the Reverse Mortgage?

The main requirement for one to qualify for the reverse mortgage is that you must be 62 years of age or above. Moreover, the property on which you intend to borrow a reverse mortgage should be your primary residence. Reverse mortgage lenders require that the borrower goes through financial counseling. The mandatory financial counseling helps the lenders determine whether the borrower theoretically understands the obligations he or she is getting into. Further, you must have a significant amount of equity.

Key Take Away

When borrowing reverse mortgage Arizona, it is advisable that you shop for a good reverse mortgage lender. The requirements may vary from one reverse mortgage lender to another. For instance, some lenders may look at other factors that are considered to come into play when borrowing a traditional loan. These are factors like a good credit score and outstanding debts. However, for the reverse mortgage AZ, debt to income ratio is not likely to be a consideration.


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