REAL ESTATE TRANSACTIONS IN ELDER LAW : Reverse Mortgages
your life's most valuable assets
At the end of the day, your home is the place you live - so you will want to carefully consider the risks of drawing out the equity before it is truly necessary.
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REVERSE MORTGAGES ARE A USEFUL METHOD TO HELP YOU STAY IN YOUR HOME … BUT BE CAUTIOUS WHEN YOU ENTER THOSE WATERS
When an elderly person is running out of cash but wishes to remain in his or her home, a reverse mortgage can be a very useful tool to access the equity in the home. Traditional home equity loans are often not available to low income seniors on fixed incomes, and they generally require repayment on an amortized monthly basis.
The reverse mortgage, on the other hand, is not paid back until the borrower sells, moves out, or passes away. While the costs can be steep, it is often the only way to buy yourself a few extra years in your house.
At the end of the day, though, your home is the place you live – so you will want to carefully consider the risks of drawing out the equity before it is truly necessary.
The lending principles are greatly weighted to favor older borrowers. If the couple is married, each of them needs to be older than 62 to be able to co-sign the loan. This is critically important, because if one spouse is younger than 62 and the older spouse dies, the loan will become due and payable in full. If the surviving spouse is unable to refinance that loan into a conventional mortgage, the result could be foreclosure, as described in a recent New York Times article.
As you start this process, carefully consider your monthly budget. Don’t leave anything out. The major items are typically real estate taxes and the cost for in-home care. You have utilities, periodic repairs, and certain bills that come in quarterly. What is your income? What is your budget shortfall each month?
The safest, most conservative approach could be for the homeowner to arrange to draw out the equity under a method that is like a home equity line of credit. The interest rate will fluctuate, but you are using the equity as needed, for your true necessities.
If you currently have any liens on your property, they would need to be paid off at the “closing” of the reverse mortgage. This will reduce the amount of remaining equity you can utilize over the life of your new loan.
Useful information is available from –
- Federal Trade Commission
- U.S. Department of Housing and Urban Development’s Reverse Mortgage FAQ