In many cases, individuals entering retirement have had their home for decades during which it has not only served as a place to live and raise their family but also as an asset which has gone up considerably in values.   Although having such a valuable asset is a good thing, it is often the case that they would benefit significantly by being able to access the value in their home today without having to move.  A reverse mortgage may be the right option.

What is a Reverse Mortgage?

A reverse mortgage or “home equity conversion mortgage” is a type of home equity loan that is available to homeowners who are 62 or older who own their homes outright or have small mortgages.  This kind of loan does not require monthly mortgage payments but does require that the loan is repaid if the homeowner moves out of the home for 12 months or dies.

The Terms of the Loan

The terms of the loan can be influenced by various factors which include but are not limited to the value of the home, you and your spouses’ ages, any existing mortgage, the current interest rate, and the lesser of the appraised value of the Federal mortgage limit for this type of loan.

Advantages and Disadvantages of a Reverse Mortgage

A reverse mortgage can be advantageous for homeowners who do not plan to move and are seeking to have more funds to support their retirement lifestyle.  This type of loan frees up your equity and depending on your needs, you can access the equity as a line of credit, in one large amount at one time, or on a schedule where you are paid a certain amount on a monthly basis.  Additionally, it does not require the homeowner to surrender their title or move out of their home.  A reverse mortgage loan is a non-recourse loan meaning that you and your heirs can never owe more than the values of the house despite the amount borrowed.  After the balance of the loan is paid, any remaining equity belongs to you or your heirs.

The loan can become due and must be repaid when certain events occur such as if the homeowner fails to pay their property taxes or homeowner’s insurance, or fails to maintain the property.  Therefore, this type of mortgage may not be as useful to homeowners who already have challenges in paying for these expenses.  Additionally, this type of loan may affect the borrower’s eligibility for Medicaid or other need-based federal programs.  This type of loan may also not be a good choice for homeowners who are more concerned about leaving their home equity to heirs as the heirs will have to pay the loan balance and may have to sell the home to do so.

Deciding which mortgage option is right for you can be complicated.  When examining mortgage financing options, it is essential to have sound advice. Our office has experienced attorneys who can assist you in determining which option makes the most sense for you and your family.  Please contact us online if we may be of assistance.

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