Using a Reverse Mortgage

Many older adults own their homes outright (in other words they have paid off their mortgage). That can be a good thing because there is no monthly mortgage payment to be made. However, what happens is that many people find themselves "house rich and cash poor". Their home may be worth thousands of dollars, but they are living on a fixed monthly income and don't have enough money to cover their basic expenses, let alone anything else.

Another situation is when you are selling your home, and purchasing another home (perhaps downsizing or just moving closer to the grandkids). You may not be able to qualify for a traditional mortgage because you are retired, but you also don't want to put all of your cash into the new house. A reverse mortgage can now also be used to purchase a replacement home.

If you are thinking about a reverse mortgage, you should meet with a reverse mortgage specialist. I know several that I can refer you to. They will sit down with you to explain the reverse mortgage, and assess your individual situation. A reverse mortgage is not right for everyone. If it's not right for you, they will tell you that.

Rules for a Reverse Mortgage:

  1. All borrowers on a reverse mortgage must be at least 62 years old.

  2. The amount you will have access to is based on an appraisal of the house and your age (the older you are, the larger percentage of the equity you are allowed to borrow).

  3. You do not have to make any mortgage payments as long as you (or your spouse) continue to live in the house.

  4. You must continue to pay property taxes and maintain homeowners insurance on the house.

  5. If you sell the house, move out of the house for longer than 6 months, or die, the loan plus accrued interest must be paid back. If you die, your heirs must either refinance the house or sell it to pay off the outstanding loan balance within 6 months.

Aging In Place

If you want to stay in your current home, a reverse mortgage lets you tap into some of the equity in your home - WITHOUT TAKING ON A MONTHLY MORTGAGE payment. The official name of what is commonly know as a reverse mortgage is a Home Equity Conversion Mortgage (or HECM - heck em). When these mortgages were first introduced years ago, they got a bad name when some elderly homeowners lost their homes to a foreclosure on a reverse mortgage. However, the rules have been tweaked, and there are more safeguards in place now, so there is less chance of this.

You can take the equity as a lump sum payment or you can treat it like a Home Equity Line of Credit (also known as a HELOC). Either way, you can use the money to pay your monthly bills or to make modifications to your home so you can age in place, etc.

Using a Reverse Mortgage for Purchasing a Replacement Home

A reverse mortgage can now also be used for a purchase! This means you can sell that huge home with the big yard that was perfect when the kids were growing up, and buy a smaller home or condo (perhaps in an active adult community) that is more suited to your needs at this stage of your life. But you can also keep some of the cash from the sale of your first house, and then not have a mortgage payment! How cool would that be?