As the Baby Boomer’s retire, an increase of advertisements offering “reverse mortgages” are hitting the airwaves, leaving homeowners (and their children) asking, “Is this a good idea for us?” Due to the ramifications of reverse mortgages, parents should never make these decisions alone without consulting the family who will have to finish the process upon their passing. Today we’ll break down what a reverse mortgage is, and who it might benefit.
“What Is a Reverse Mortgage?
In a word, a reverse mortgage is a loan.”
A “reverse mortgage” s a financial agreement between the bank and the borrower in which a homeowner relinquishes equity in their home in exchange for regular payments, typically to supplement retirement income. It is in essence a mortgage but instead of receiving the full equity at one time and then paying the bank back over time, you receive the equity in small quantities over time, and pay the bank back at the end - and its that last part where homeowners need to know the dangers of a reverse mortgage.
A reverse mortgage may be a good idea for you if:
You are at least 62 years old
A homeowner must be at least 62 years old to qualify for a reverse mortgage.
You have enough money/energy to maintain your home throughout the remainder of yur natural life
As the homeowner, you will be expected to keep the home in good order over the course of the reverse mortgage. If you fail to keep the home and property up to local codes and the lenders standards, the lender will have the right to foreclose on the property and remove you from the home.
If you can’t afford to have someone else maintain your home, this means that you’ll need to do it yourself until the borrowers date of death.
You have enough money to pay the taxes on your home without the extra money.
Again, as the homeowner, the lender will expect you to pay the taxes associated with the property. If you do not, the lender again retains the right to foreclose on the property and remove you from the home.
You don’t have any heirs.
At the end of the term of the loan, the lender looks to the estate to fulfill the mortgage. Typically this means that the home is sold and the assets used to pay the debt. In the case of jumbo reverse mortgages, the estate may be liable for any shortfall in the debt.
You plan on being healthy and never leave the home until your date of death
Many reverse mortgages have a clause that allows the bank to foreclose if the homeowner is no longer residing at the home for a span of time - regardless of the reason - such as illness.
Sadly, we’ve seen more reverse mortgage foreclosures than we wish, and the story is always tragic. The family is left holding difficult decisions at the same time as the death or extended illness of a loved one. Be careful, there are many ways for a reverse mortgage to end poorly, and only one way for them to suceed - with the help of the whole family.
For more information:
https://www.wtae.com/article/investigation-finds-reverse-mortgages-can-be-risky/30029369
https://www.consumerfinance.gov/ask-cfpb/what-is-a-reverse-mortgage-en-224/