Reverse Mortgage Loan Blog

For many people, their home is their single largest asset. Seniors, in many cases, may have limited “liquid” assets, such as money in the bank, but may own their homes free and clear. This can create problems with cash flow during the retirement years, especially for those who have insufficient income to pay property taxes or make needed home repairs.

For some people, a reverse mortgage or home equity conversion may be the answer.

A reverse mortgage is exactly what it sounds like, that is, a loan against the equity of your home which generally converts that equity into tax-free funds. The borrower must be 62 years old or older, and occupy the property as their principal residence. The home must be mortgage free, or have a small remaining mortgage which will be paid off by the reverse mortgage.

No income, employment or credit requirements are necessary, but the borrower must receive counseling from a HUD-approved agency to receive a certificate of eligibility. The loan can be advanced as a lump sum, fixed monthly cash advances, or a line of credit.

The amount that can be borrowed is based on a formula that factors in the age of the youngest homeowner, the interest rate, appraised value, and the county where the property is located. Interest is charged on the balance outstanding, and the loan does not need to be repaid as long as a borrower lives in the home, paying the taxes, insurance and upkeep.

It sounds like a great deal, and for some people a reverse mortgage is the answer that allows the senior to stay in his or her home. However, approach such a plan with a great deal of caution. The closing costs are steep, and a reverse mortgage can have unintended consequences for a surviving spouse.

While the equity remaining in the home does belong to the surviving spouse or the homeowner’s heirs, there may be little to no equity remaining, depending upon the amount of interest owed, and cash advances that were made.

For instance, an older spouse may choose to pursue a reverse mortgage, but may die and leave a younger spouse with no home (persons under age 62 years may not be a borrower), and little equity from a sale of that home after the loan is repaid.

Even if one spouse dies, and the other spouse is also a borrower, the surviving spouse may wish to move to a retirement community, but may not have sufficient equity remaining in the home when it is sold to purchase more appropriate housing.

The closing costs must be examined closely also. What on the surface appears to be a good alternative to a traditional mortgage or line of credit, a reverse mortgage may come with high closing costs that could make refinancing a mortgage a more attractive alternative.

But some people might not have sufficient income to pay the monthly payments associated with traditional mortgages. For them, a reverse mortgage might be a more attractive alternative.

A widow who wishes to remain in her home but has insufficient income to meet the annual property taxes costs, or who is paying for care in her home rather than be admitted to a nursing home may find that a reverse mortgage is the key to remaining in the home. The same is true for a single person with no children who has a limited income and high expenses.

Some people wish to have property remain in the family, but they lack the resources to maintain that property. In this case, a private reverse mortgage with the family members may solve the problem without the associated costs.

Reverse mortgages may be the best option for some people. However, careful research and elimination of all alternatives should precede any action.

The legal advice in this column is general in nature. Consult your attorney for advice on your individual situation

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