Reverse Mortgages Can be Great, but be Sure your Spouse is Protected

Reverse Mortgages are a very useful tool for people who are running low on liquid assets but wish to remain in their homes. These non-recourse loans are designed to give seniors over age 62 access to the equity in their homes, and unlike the traditional mortgage or Home Equity Line of Credit, monthly payments are not required. However, when the homeowner/borrower vacates the premises (such as, he moves to a nursing home) or dies, the loan will be due, so the property will have to be listed for sale so that the loan can be paid back. Find the FAQs and rules at http://search.usa.gov/search?affiliate=housingandurbandevelopment&query=reverse+mortgages

The older the borrower is, the larger the percentage of the home equity that will be made available. A useful way to structure the loan is to set it up with a line of credit. The borrower can withdraw a fixed amount each month, put it in their bank account and use it to pay bills — such as in-home health care — and then repeat this method month after month.

One problem that married couples encounter is when the borrower’s spouse is younger than 62 when the loan is taken out. If she isn’t a co-borrower on the loan, and he dies or has to move out, the loan will be called and the house will have to be listed for sale if the spouse can’t refinance the loan on her own. This sudden displacement can be very traumatic. This issue has become a noticeable problem over the last several years, even with couples where there is a substantial difference in age between the two spouses. While the amount of funds available will be greater without the young spouse on the loan, the downside risk may be much greater. See discussion, for instance, at http://www.nytimes.com/2011/03/12/your-money/12money.html?_r=0

Reverse mortgages are one of the planning tools to be considered when you are working out your long-term life care strategy. You need to be sure you understand all the rules.

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