Is a Reverse Mortgage Right for You?

Are you 62 or older?
Do you own your home?
Do you live there the majority of the year?
Do you plan to live there for many more years?
Do you need money to modify your home to make it more accessible or to meet rising medical costs or other needs?

If so, you might want to learn more about “reverse mortgages.” This form of financing enables many seniors to remain in their homes. In this article we’ll help you determine if a reverse mortgage might be an option for you. If it is, you’ll want to do more research. We’ll tell you at the end where you can find in-depth information.

If you’re like many Americans, your home is probably your biggest financial asset. In the past, the only way you could “cash in” on that investment was to sell your home or borrow against it. With a reverse mortgage, however, you can take advantage of the equity you have in your home without having to move and without making monthly loan repayments. As a matter of fact, you don’t have to pay back a reverse mortgage for as long as you live in your home.

There are other advantages to this kind of financing, too.

Income and credit are not considered in determining eligibility. You can have no income and bad credit and still qualify.
Because the proceeds of a reverse mortgage are a loan and not income, they are tax-free. Social Security and Medicare usually are not affected. (Consult your tax advisor for particulars.)
A reverse mortgage is a “non-recourse” loan. Because you cannot borrow more money than your home is worth, you (or your heirs) will never be required to pay more than that. The lender cannot seek repayment from your income, your other assets or your heirs’ assets.
You usually can get the money as a lump sum, as a “credit line” from which you can take funds, as you need them, as a monthly cash advance, or as a combination of these options. If you choose the line of credit payment option, the unused portion of the line of credit earns grows.
There are no restrictions on the use of the proceeds.
The older you are, the more money you can get.
You continue to own your home, and you may leave it to whomever you please.

Those are the pluses. What are the minuses?

In general, the greater the value of your home, the more money you can get. But that varies by county if you are applying for the most widely available reverse mortgage, a federally insured HECM (Home Equity Conversion Mortgage). For instance, if your home is valued at $180,000 and your county limit is $160,000, your cash advances will be the same as if your house were worth $160,000.
The mortgage must be repaid in full, including all interest and other charges, when you sell the house, move permanently or die. If your heirs want to keep the house, they must refinance the debt or use other assets to pay for it.
Because you continue to own your home, you are responsible for property taxes, insurance and repairs. As with other mortgages, if you fail to meet these responsibilities the lender can declare you to be in default and require you to repay your loan in full at that time.
While some HECM lenders provide reverse mortgages for manufactured housing, cooperatives and most mobile homes are not eligible for this kind of loan. (Single-family dwellings qualify, of course, as do a number of two- to four-unit owner-occupied buildings and condominiums.)
Reverse mortgages have start-up costs. That’s okay if you plan to be in your home for years to come. If you think you might move within a few years, however, and you could make monthly loan payments, you should think about getting a low-cost home equity loan instead.

There are a number of different types of reverse mortgages, including the HECM, the Fannie Mae Home Keeper, and proprietary programs offered by private banks. Other loan options include Deferred Payment Loans (DPLs) offered by local and state government agencies and “property tax deferral” (PTD) loans.

You should also seriously consider whether you might be better off selling your home and moving into housing that costs less, requires less maintenance or offers more assistance with daily needs.

For More Information on Reverse Mortgages

“Home Made Money: A Consumer’s Guide to Reverse Mortgages,” a free 48-page booklet from the AARP: Call 1-888-687-2277, or write to AARP Fulfillment #D15601, 601 E Street, NW, Washington, DC 20049.

At www.aarp.org/revmort, the AARP provides an online, up-to-the-minute version of the information printed in the “Home Made Money” booklet. Using the online calculator at this site, you can get an estimate of HECM cash benefits based upon your age, home value, county loan limits and current interest rates.

At www.reverse.org, the National Center for Home Equity Conversion Mortgage offers independent information on reverse mortgages for consumers, their families, professional advisors, and nonprofit counselors. NCHEC is a nonprofit organization with no ties to the reverse mortgage lending industry.

National Reverse Mortgage Lenders Association, a national nonprofit trade association that represents lenders that make reverse mortgages, offers a number of free consumer guides. Call 1-866-264-4466 to request or download copies at www.reversemortgage.org