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 that has appreciated considerably in value. Although having such a valuable asset is a good thing, it is often the case that they would benefit significantly by accessing 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 available to homeowners who are 62 or older and 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 be 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 including, but not limited to, the value of the home, you and your spouse’s ages, any existing mortgage, the current interest rate, and the lesser of the appraised value or 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 more funds to support their retirement lifestyle. This type of loan frees up your equity, and depending on your needs, you can access it as a line of credit, in one lump sum, or on a schedule where you receive a set amount monthly. 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 value of the house despite the amount borrowed. After the loan balance is paid, any remaining equity belongs to you or your heirs.
The loan can become due and must be repaid if certain events occur, such as if the homeowner fails to pay 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 struggle to pay these expenses. Additionally, this type of loan may affect the borrower’s eligibility for Medicaid or other need-based federal programs. It 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 need 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.
