Is A Reverse Mortgage Right For You?

Staff Writers

A reverse mortgage is one option homeowners aged 62 or older may use as a way to tap into the equity they have built up in their house or condominium. It gives them the money they need to stay in their home and, possibly, to make needed improvements and modifications for safety and accessibility. It also helps many seniors stay at home while paying for home care and medical bills.

How? If your home is paid off or you have only a small mortgage left, you can get a reverse mortgage that allows you to use the equity in your home without selling or moving. These mortgages are called reverse mortgages because the lender makes payments to you, the homeowner, not the other way around.

The money you will receive is likely to be tax-free and will not affect Social Security payments or Medicare benefits. You do not have to pay off the loan until the last borrower moves out of the house or the home is sold. You or your heirs will never owe more than the value of the home at the time of repayment, even if the loan balance is higher than the value of your property. No debt will be passed on to your heirs. Reverse mortgage funds are available to spend any way you choose.

Who Is Eligible?

To be eligible for most reverse mortgages, you must be 62 years or older. (If you are a married couple the younger partner must be age 62.) You must also either own the home outright or have a low mortgage balance that can be paid off with the proceeds from the reverse loan. You must also live in the home. Like all homeowners, you still are required to pay your real estate taxes and other conventional payments like utilities.

Cautions and Things to Remember

• Be sure to work with a reputable lender, consult with your financial advisor if you have one, and do your homework before you make any commitments or sign any documents.
  
  
• Investigate the costs involved in a reverse mortgage before making the decision. Closing costs and fees may amount to more than 5% of your home’s value.
  
  
• If you plan to live in your home for at least three years, a reverse mortgage can make good financial sense. However, if you know you won’t stay in your home that long, then the cost of getting the loan may outweigh the benefits.
  
  
• Using the equity in your home will reduce the amount of money you leave to your family as inheritance

Being an Informed Borrower

Remember, a reverse mortgage is a kind of loan. And, as with any loan, there are fees and interest that must eventually be paid. Think of it this way: a reverse mortgage gradually reduces the amount of equity you have in your home by the amount of the payments advanced to you, plus interest on the amount advanced, plus any fees you finance as part of the deal.

So, being an informed, careful borrower is important. Get all the facts. Ask questions about anything you don’t understand. And don’t sign on the dotted line without discussing your situation with a trusted advisor, friend, or loved one. In short, be sure to select a reverse mortgage lender and type of loan (for example, HECM or Home Keeper mortgage) with the same care and attention you would bring to any major investment decision.

For More Information

You can call the Housing Counseling Clearinghouse at 1-800-569-4287 to obtain contact information for a HUD-approved counseling agency and a list of FHA-approved lenders in your area.

The AARP offers information about reverse mortgages, including an online calculator you can use to find out how much money you may get from a reverse mortgage.

The National Reverse Mortgage Lenders Association (NRMLA) website includes information for consumers who are interested in learning more about reverse mortgages.

To learn more about red flags to watch out for, see the recent article “Tapping Into Homes Can Be Pitfall for the Elderly” in the New York Times. (Free registration may be required to access the website.) 

Right at Home is a national organization dedicated to improving the quality of life for those we serve. We fulfill that mission through a dedicated network of locally owned, franchised providers of in-home care and assistance services.