Reverse Mortgages
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A Reverse Mortgage is an option available to seniors that allows you to turn what you have into what you want. For many seniors, when you were younger, you had income that you wanted to turn into equity in your home. Now, as you get older, you may have equity that you wish to turn into income. While a Reverse Mortgage may not be suitable for all seniors, for many seniors it can make a huge difference in the quality of your life.
With a reverse mortgage, you still remain the owner of your home and you are still responsible for all maintenance, property taxes and homeowner’s insurance. Since Reverse Mortgages are generally “nonrecourse” loans, you can never owe more than the value of your home at the time the loan is repaid. This means that the lender cannot seek recourse to your other assets or your estate, it may only seek recourse for repayment to your home itself.
To obtain a Reverse Mortgage you must own your home and all of the owners must be at least 62 years of age. It must be your principle residence and it must be a single family residence, a 2 to 4 unit building, a condominium apartment or a home in a planned unit development. Some lenders may even provide a loan based on ownership in a cooperative apartment even though there is no mortgage in co-op ownership. Reverse Mortgages must typically be first mortgages. This means that all existing liens and mortgages must be paid off before obtaining the new loan. It is typically not a problem when you have a small outstanding mortgage because the new lender can provide an immediate cash advance to pay off the existing mortgage.
There are several options on how to receive your money after closing on a Reverse Mortgage. If you wish to have an immediate lump sum paid to you at closing, you can set up your loan for an immediate cash advance. If you do not have an immediate need for cash but just want to have a safety net, you can set up your loan to provide a credit line account upon which you can draw funds whenever you choose. Another popular option for Reverse Mortgages is to have monthly cash advances for either a specified number of years, as long as you live in your home, or even for the rest of your life. You can also use any combination of the above-listed options. Most seniors will use some combination because most people prefer to have the loan costs, such as appraisal and application fees, surveys and title costs, etc. paid from a cash advance at closing.
Your Reverse Mortgage must be paid back when the last surviving borrower dies, sells the home or permanently moves away. The amount you will owe at the end of your loan will be the amount of all of the cash advances you have received plus all of the interest on them up to the nonrecourse limit. If, at the end of the loan, the loan balance is less than the value of the home, the lender gets paid the amount you owe and your heirs would get to keep the rest. The benefit to seniors of no monthly payments and no repayment of any kind for as long as you live in your home is something that you should consider if you have a lot of equity in your home but are in need of cash to make ends meet or improve the quality of your life.