I hesitated to write about reverse mortgages because I am firm believer in building equity in your home and not spending it. However, as the population ages and folks live longer, money needs to be stretched more and more. According to the AARP the 75+ age group is the fastest growing demographic and 4 out of 5 are women. Of those seniors 83% are property owners and 63% own their own home free and clear. Yet, some of these same people do not have enough money for groceries and are burden heavily by medical bills in spite of having Medicare and Social Security.
Many of our older Americans are saving the family home as a legacy for their children and therefore do not want to use any of the equity in the home. But many of us children would rather see our parents and grandparents live comfortable lives over receiving a trust. Some parents will not tell their children that they use credit cards to pay for their groceries or are so cash poor that the real reason they don’t get out is so they have enough money for food and medicine. I would much rather see my parents enjoy that trip to the Tetons that they have always talked about over receiving an inheritance.
Reverse mortgages are like any other mortgage in that you must learn about the details of each program. The AARP web site is a great place to start learning about reverse mortgages. The HUD web site also has great information about reverse mortgages and how to obtain financial counseling to avoid reverse mortgage scams.
Reverse mortgages are different than equity loans, second mortgages, credit cards, and lines of credit because they aren’t repaid via a monthly payment. With a reverse mortgage the loan is paid back when the house is sold or when the primary owners have passed away. If one spouse passes away before the other, the loan is not due until the surviving spouse no longer lives in the home as their primary residence. You can never owe more than the value of the home when the loan is paid off. If there is remaining equity in the home after the loan is paid off that equity can be transferred to your heirs.
HUD offers reverse mortgages that have some advantages over private lender reverse mortgages. To compete with HUD, lenders are starting to offer more features. The owner can receive funds in the form of a lump sum, monthly payment, a line of credit, or a combination of methods. The borrower must be at least 62 years of age and their home must be owned free and clear or the mortgage owed must be paid off as a part of the reverse mortgage. The home owner is still responsible for paying property taxes and maintaining insurance. Some who have utilized reverse mortgages in California use it for paying property taxes and insurance.
The IRS does not consider the money borrowed through a reverse mortgage as income. The loan proceeds do not affect Social Security eligibility. To receive a reverse mortgage HUD requires the applicant to complete financial counseling. You can find out more at www.reversemortgage.org.
The best advice I can offer is to sit down and talk with your family about finances and see if a reverse mortgage may be exactly the right thing for relieving worry and/or simply opening doors to dreams they have always had. If you knew that the best holiday gift you could give would be allowing your parents or grandparents to use their equity on something they always wanted to do instead of leaving it to you, what would you do?
For more information about reverse mortgages, contact me for an information packet. You can also contact Maureen Schwartz at Countrywide. She’ll be happy to sit down with you and explain all that Countrywide has to offer. With over 20 years of experience in the residential market, Maureen is a great local resource.
Reverse mortgages are not for everyone. Home equity is a very special asset that should be used wisely. Families should talk about how to utilize the assets they have in the best possible way. That may be exactly the peace of mind we are all looking for, especially during the holiday season.