Reverse Mortgages - What Are They and Are They Right For You?
What is a reverse mortgage?
Created in 1989 by the US Department of Housing and Urban Development, a reverse mortgage is a home-equity loan for homeowners that are aged 62 or older. A reverse mortgage allows a homeowner to access the equity in their home, by turning equity into tax free cash. The homeowner does not have to make a mortgage payment, sell the home, or give up the title to their home. The owner still maintains ownership of the home and the heirs can still inherit the home upon the owners passing. Basically, it is a line of credit.
Why would I want a reverse mortgage?
A reverse mortgage can help balance monthly bills, eliminate mortgage payments, or event pay medical or healthcare expenses. These are just a few reasons you might explore a reverse mortgage.
Who can get a reverse mortgage?
Anyone that is at least 62 years old and lives in the home (must be their primary residence). The homeowner must have sufficient equity built up in the home and must have enough income to afford their basic living expenses, debts, homeowner’s insurance, and property taxes. The only other requirement is your credit history must show willingness to pay recent debt obligations on time.
How is a reverse mortgage paid off?
Once the borrower passes away or moves out of the home, the loan must be paid off. There are 3 options: 1) The home can be sold if the proceeds from the sale can pay off the balance of the loan, 2) the heirs can keep the home for 95% of the appraised value or the balance of the reverse mortgage, and 3) If there is no remaining equity, the heirs or the estate can transfer the title to the lender and walk away.
Is a reverse mortgage right for me?
That depends! If you need a reprieve from mortgage payments, need additional money to live off, or supplement your income, maybe. However, there can be disadvantages, so it is important to speak with your CPA, attorney, or financial advisor in order to better understand if a reverse mortgage would appropriate for your situation.
A big thank you to Mace Kochenderfer, Gordon Mitchell, and the New Mexico Reverse Mortgage team for educating our office on reverse mortgages.