Pros and Cons of Reverse Mortgage Payment

California Reverse Mortgage Overview

A California Reverse Mortgage is a loan where the lender provides funds to you in one of the following ways: a lump sum, regular monthly payments, a line of credit, or a combination of these options. You retain ownership of your home and are responsible for paying property taxes, operating expenses, and maintenance. Since no regular payments are made on the loan, the balance increases each month due to accrued interest. Upon your death, your heirs are responsible for repaying the loan, typically through selling or refinancing the home. Below are the pros and cons of various payment options for a California Reverse Mortgage:

A. Line of Credit

Pros:

• Flexibility: Access funds as needed, offering convenience for unexpected expenses.

• Growth Potential: Unused credit grows over time, reflecting home appreciation and your age.

• Extra Income: Combine a lump sum, monthly checks, and a line of credit to supplement retirement income.

Cons:

• Spending Lure: Easy access to funds may lead to quicker depletion.

• Red Tape: Accessing funds involves a written request and several rounds of official documentation.

B. Term

Pros:

• Instant Transfer: Regular, fixed monthly payments are automatically deposited, meeting immediate financial needs.

• Regular Income: Large monthly advances help with predictable expenses.

Cons:

• Fixed Amount: Monthly payments are fixed; additional funds require a time-consuming request to change the payment plan.

• No Inflation Adjustment: Payments are not adjusted for inflation, potentially reducing their purchasing power over time.

C. Tenure

Pros:

• Long-Term Security: Fixed monthly payments continue for as long as you live in the home, even if payments exceed the home's value. You will never owe more than your home's worth.

• No Financial Worries: Payments continue as long as you reside in the home. Your spouse will continue to receive payments if they outlive you. The income is tax-free.

Cons:

• Fixed Monthly Payments: If additional funds are needed, changing the payment plan can be a lengthy process.

• Less Equity for Heirs: Choosing the wrong program may leave less equity for your heirs.