A Reverse Mortgage allows a person with substantial equity and who is either aged 62 or over, under certain conditions to use the equity in their home to offset the cost of a monthly payment for that loan. This means that the only amount they would be responsible for and obligated to pay is the property taxes and homeowner’s insurance on the property so long as they reside in it as their primary residence. A home may be refinanced into this program or a person may put a substantial amount of funds down and have the Reverse mortgage as the purchase money loan.
Some years ago I sat in a training for Reverse Mortgages. No, I wasn’t impressed, nor did I see the point in pushing a negatively amortizing loan that wasn’t a band-aid or a tool. A lot of life has happened since then – both personal and in the world. For many people, their home is now their only asset and what happens when inflation bites into your already too small social security check? Is it possible that this loan vehicle is actually a good tool in certain situations? No, they are not for everyone or even most people, but they have a good and useful purpose as a far better lending product than they were decades ago when I first sat wagging my naysaying head in that class. I cannot reasonably be a big fan of a negatively amortizing product, unless it is truly being used for it’s rightful purpose.
How so, you ask? Well consider the 80 something who has chosen to age in place with a free and clear home. No longer working, their SS check is what they live on and we all know how the grocery store is or gas prices are right now, right? Say the furnace dies or the roof needs replacement or any other thing that happens, is it just gonna be a cold winter in every way? This is when a Reverse Mortgage might more than make sense. There is the ability to take some as a monthly income, or have a credit line to draw on for emergencies and all without the requirement of repayment, though it can be repaid. And the line expands over time and the home will not fall into foreclosure. The payment that must be made is taxes and insurance, but even that can be arranged. Essentially it allows someone to use their equity to live without a house payment so long as they live in the home.
What happens when they move to a higher level of care due to health issues or pass away? The home still goes to the heirs and can be sold or refinanced. There are more details on this, in that there are now protective safeguards for the owner and their heirs in terms of not losing their home to foreclosure. The best thing perhaps is that before a person can even apply for one, they must go through a counseling session and are encouraged to bring family members/advisors with them to get all questions answered upfront such that they are clear on how it works and how it will benefit them.
The last piece of good news with Reverse is that you can purchase a home with it! Yep, when that 3500 square foot home where the kids were raised is now empty and worth a pile, you can sell it and downsize and use the Reverse to finance a portion of it (required down payment is based on age), leaving you with money in the bank and no house payment and still have access to an equity line that will grow as you age. There are several configurations of the funds available.
There are stories where Reverse is a miracle for older folks living in a free and clear home with everything broken – roof, appliances, dry rot and no means to repair any of it. Each of the stories I hear of this tool changing a life touches my heart, because it’s a real life difference for them. One lady can now wash and dry her clothes without walking into a mold infested basement and better take care of herself with some improved monthly income.
Maybe you know someone who is struggling to survive, but owns their home. Even if they currently have a lien on the home, if it is less than half the value, it could be translated into no mortgage payment for that person. The minimum age for these is 62, but I have at least one outlet that will go lower. They aren’t for everyone and by and large, not for most people, but there are cases where their smart investment of a home is the gift they need to draw on right now.
If you’ve got a scenario, let’s talk and see what we can do to make a difference in someone’s life for the better.
Have helped buyers of all types and financial levels and worked on 1000's of loans.
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