FOCUS ON: Reverse Mortgage

What Is A Reverse Mortgage?
A Reverse Mortgages permits eligible homeowners (age 62 or older) to use a percentage of the equity they have built up in their homes, without having to sell the home, or give up the title. It is designed to strengthen seniors’ personal and financial independence by providing tax-free income, or cash available, without a monthly payment during their lifetime in the home, while you continue living in your home.

Eligible property types include single-family homes, manufactured homes (built after June 1976), qualified condominiums, and townhouses. There are no income or medical requirements to qualify. You may be eligible for a reverse mortgage even if you still owe money on an existing mortgage. However, you must qualify for a large enough reverse mortgage to pay off the existing loan entirely.

The funds you receive from a reverse mortgage can be used for anything. You can choose to receive the money from a reverse mortgage all at once as a lump sum, fixed monthly payments (for up to life), as a line of credit, or a combination of these. The amount of money you get from a reverse mortgage depends upon your age (or age of youngest borrower in the case of couples), appraised home value, current interest rates, and the lending limit in your area. So, the older you are and the more valuable your home (and the less you owe on your home), the more money you can get. More importantly, a reverse mortgage does not affect your Social Security or Medicare benefits.

Sounds Good? There Are Disadvantages.

• If you are receiving or will be eligible to receive Medicaid, you will want to be careful that income from a reverse mortgage does not disqualify you from that assistance. As a rule, any funds you receive, that are not spent, and are in your bank account, would count as an asset, and would be subject to spend down.
• Most people want to be sure their home goes to their heirs. So, it is important to remember that the interest on your loan is always accumulating. It is possible that the value of your loan plus the interest could exceed the value of your home. If you decide to sell your house at that point, the full selling price goes to repaying your debt, and you're left with nothing.
• A reverse mortgage loan requires no repayment for as long as you live in your home. If the home is sold, the borrower moves, or the last living borrower dies, the loan must be repaid. Usually the home is sold to repay the mortgage.
• With a reverse mortgage, you still own your home. You are responsible for repairs, taxes, and insurance. A default on any of these could cause your loan to become payable in full.
• If you are planning to move to another residence, a reverse mortgage is not right for you. Remember, a reverse home mortgage loan is due if your home is no longer your primary residence.

Before applying for a reverse mortgage, please be cautious. Reverse mortgages should not be used to finance a vacation or a shopping spree. A Reverse Mortgage shouldn’t be used to fund an annuity or other investment. You should only consider a reverse mortgage if you need cash to finance your living expenses, and you are too attached to your home to raise funds by selling it. In other words, it is strictly a last resort.