The Pros and Cons of Reverse Mortgages
Retire early by refinancing your home equity mortgage with a Reverse Mortgage. There are many pros and cons of Reverse Mortgages.
Pro: HECM reverse mortgages are extremely popular today. The benefits of this type of refinancing includes: Lower interest rates, increased home equity, lower monthly payments, higher loan amount, and no prepayment penalties. This refinancing strategy also offers greater flexibility on the initial purchase of the home. Other advantages include lower credit score requirements, online application process, and quick approval.
Pro: Reverse Mortgages are popular among senior citizens, people who have a low credit score, and those who have been in their current home for some time. Because of these characteristics, many consumers assume that the Reverse Mortgages are affordable. One concern about this is that not all lenders offer the same features. Although no one can guarantee an affordable rate, when compared to a traditional mortgage, the rates are very reasonable. Low APR on this type of loan is the most important point when considering the pros and cons of HECM reverse mortgages.
Pro: There are a lot of pros and cons of HECM reverse mortgages. Some of the Pros include; low cost, higher home equity, fast approval process, and no prepayment penalties. This type of mortgage may be best suited for those who are looking to purchase a new home and refinancing old ones, so it would be wise to understand your current finances before applying for a HECM reverse mortgage.
Pro: The only Pros that could possibly have negative con are the increasing rates. This comes from the fact that the financing rate increases annually. HECM reverse mortgages require a payment of annual mortgage payment along with the payments for the adjustable rate, in addition to the principle that is paid every month. For many seniors, there is the possibility of becoming buried in debt, since the APR of the adjustable rate is a variable amount.
Pro: The cons of HECM reverse mortgages include; a significant increase in the monthly payment. It is also possible that you may become trapped in a mortgage that costs you more than it is worth. Many seniors decide to go through with this type of mortgage rather than refinancing the home equity with a traditional mortgage.
Pro: The cons of HECM reverse mortgages include; paying a significant interest cost. Although the fixed rate is better than a balloon loan, it is also true that this type of mortgage makes homeowners’ pay more each month because of the pre-payment penalty. Not all mortgage companies will charge this, but it is still worth asking what kind of interest rate they charge for their reverse mortgages.
As you can see, there are many pros and cons of HECM reverse mortgages. Like most types of refinancing, there are pros and cons for both HECM and conventional mortgages. This may help you determine if this type of mortgage is right for you.