Loan options overview -> Reverse mortgages

Reverse mortgages

A reverse mortgage can be a tremendous benefit to seniors
when used wisely.

A reverse mortgage can allow seniors to:
  • stay in their homes when they otherwise could not afford to
  • purchase a nicer retirement home than they thought possible
  • pay hospital or medical bills
  • improve or modify their home

While a reverse mortgage can be a key piece of retirement strategy, it should only be considered as a part of a larger financial plan after consulting with an independent, and experienced, financial advisor. Used carefully, a reverse mortgage can be very beneficial. A reverse mortgage will never have monthly payments, and the lender cannot demand a payment or payoff as long as the borrower is still living in the home, no matter how long the loan has been in force, or how much is owed on it. There are no credit qualifications, and since there is no monthly mortgage payment, income qualifying is based only on property taxes and insurance.

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Although there has been some negative press about reverse mortgages recently, for many seniors a reverse mortgage has tremendous benefits. It is important to clearly look at the issues around reverse mortgages, because there are many misconceptions.

  • One common concern is that reverse mortgage lenders take advantage of seniors. While there is no way to remove all unscrupulous people in any industry, the reverse mortgage industry has certainly tried. Again, seniors looking at reverse mortgages should always speak with a competent third party, usually a CPA or financial planner, and understand all of the terms and conditions, so that they know that getting a reverse mortgage serves their interests – not the interests of the lender or the heirs. Independent, third-party counseling is mandated by law for reverse mortgage borrowers, and the counselors are trained to ferret out abusive lenders. Seniors should only work with lenders who are National Reverse Mortgage Lenders Association (NRMLA) members and adhere to the strict NRMLA Code of Ethics and Standards for Trust.
  • Another contentious issue has been what happens when only one spouse is the borrower on the reverse mortgage, and that borrowing spouse passes. In the past, the non-borrowing spouse was often faced with having to sell the home. That has now changed, and the non-borrowing spouse has rights similar to that of a borrowing spouse. This is a wonderful safeguard, although it may sharply restrict the amount available to borrow if the non-borrowing spouse is younger than the borrower.
  • Children of seniors with reverse mortgages often complain that because their parents had a reverse mortgage, the estate – and their inheritance – will be smaller. This is usually true. One use of a reverse mortgage is to allow seniors to use the equity in their residence for themselves – to stay in the place they have chosen to spend their sunset years.
  • There is no mystery about a reverse mortgage. Whether it is used to pay off an existing mortgage, or purchase a new home, the senior never has to make a monthly payment. The mortgage payments that would have been made are simply added to the principal balance of the mortgage, and accrue interest. The senior homeowner is choosing to spend the equity in their home for themselves rather than pass it on to the kids. The home still goes to the estate – never to the lender – when the senior passes. The heirs have at least six months to sell it and take the equity that remains after the reverse mortgage is paid off, or refinance and pay off the reverse mortgage. If there is not enough equity to pay off the balance on the reverse mortgage when the property sells, the estate is not liable for any shortfall, it is only the lender that can lose money.

If you are interested in a reverse mortgage, you must do your homework, and talk to experienced professionals who understand reverse mortgages and your situation. Used properly, a reverse mortgage can be a wonderful tool for qualified seniors.