Reverse mortgages sometimes seem like the perfect solution for retirees who need a bit of extra income. Reverse mortgages allow homeowners who are at least 62 years of age to access their home equity, but the TV ads don't always fill in all the details you need to know before you consider taking one out.
If you're paying a mortgage of any kind, interest is involved. In a regular mortgage, you're aware of the interest, because you pay it every month as you pay down the principal. In a reverse mortgage, you're not making any payments — but the interest is still adding up. Depending on the details of the mortgage, the interest can amount to a point where it eats up the remaining equity in the home.
If it's just your name on the deed, you may think your decision to take out a reverse mortgage doesn't affect anyone else. However, the choice can affect your whole family. After all, if you're like most people, the bulk of your assets are tied up in your home. Talk to your spouse and kids about how taking out a reverse mortgage might affect their inheritances. They may have feelings about the family home that you're not aware of, and you don't want to ambush them with a decision they're not part of.
While you can find many reputable reverse mortgage lenders across the country, scams also exist, with crooked people offering too-good-to-be-true deals designed to bilk seniors out of their reverse mortgage cash. Watch out for contractors who insist that you take out a reverse mortgage to pay for remodelling work or anyone offering you a "free" renovated house, then asking you to take out a reverse mortgage on it. In addition, if your house is in danger of foreclosure, some scammers pretending to be attorneys may offer a way to (supposedly) put it right via a reverse mortgage. Deal only with reputable lenders, and seek advice from knowledgeable consultants to avoid being caught up in a fraudulent situation.
Not all reverse mortgages work the same way. This is great news because it means you can tailor your payout to your own needs. Maybe you want to use your reverse mortgage as additional monthly income, either for a fixed number of years or as long as any borrower is living in the home. Perhaps you'd rather treat your reverse mortgage as a home equity line of credit, taking money out when you need it. You can also opt for hybrid versions of these payout plans. Talk to your reverse mortgage lender to make sure you're choosing the plan that's best for you.
If you own your home jointly with your spouse, there's a real temptation to just list the older of the two of you on the reverse mortgage. After all, you can get little extra money that way. However, remember that you can only stay in your home as long as the actual borrower is living there. If only one spouse is named on the reverse mortgage, and that spouse should pass away or go into a senior living facility, the second spouse might suddenly find they have no place to live.
A reverse mortgage is just like a regular mortgage in this way. With a traditional mortgage, you own your home, but the bank has a lien on it. The same is true with a reverse mortgage, though with a few extra restrictions. Most notably, you must live in the home while there's a reverse mortgage on it, and you aren't allowed to lease it to anyone else.
One of the requirements for getting a reverse mortgage is a session with a certified reverse mortgage counselor. You can find a complete list of certified counselors on the website for the Department of Housing and Urban Development. The counselor you choose should be able to steer you away from the scams. You should also discuss the implications of a reverse mortgage with your estate attorney, your financial planner, or your accountant.
Reverse mortgages are a solution for some seniors who want to stay in their homes, but they're not the only solution. If you're having difficulty making mortgage payments, you may be able to refinance your existing loan. Government programs are available in some states to help. You might also be able to get a standard home equity loan that will give you the extra cash you need. Also, some families bond together to help by providing what some call a "family reverse mortgage," loaning the money needed, to be repaid via the estate.