Reverse Mortgage versus Conventional Mortgage

A reverse mortgage isn’t for everyone. If you have a substantial income already, and just need some funds for home improvement, a vacation, or a major expenditure, for example, you may do better with a conventional equity loan, if making the monthly payments on the loan would not present a financial burden.

However, for seniors who are in need of funds or additional monthly income, a conventional mortgage is not always an option. Conventional lenders will check credit and income, and although you may still be able to get a conventional mortgage with a low fixed income, your interest rate and fees may be high, possibly higher than you can afford, and you may risk losing your home.

With a reverse mortgage, you do not have to make any monthly payments, so there is no risk of losing your home due to non-payment. Therefore, there is no income qualification guideline to get a reverse mortgage; you can get one even if you have no income at all.

In a conventional mortgage, you make payments over a period of time, and your debt decreases and your equity increases. A reverse mortgage is exactly the opposite; you are taking out your equity, and your debt increases over time. Although the debt does not have to be paid back while you live in the house; typically the amount owed is repaid after your demise when the house is sold by your estate).

There are exceptions to this rule. If you are fortunate enough to live in an area where there are rapidly rising property values, you (or your heirs) may still end up with a net gain at the end of your loan.