Generally speaking, retirees’ nest eggs are smaller than they were in previous generations, according to a recent article. In addition, retirees frequently expect their retirement income to go further than it does, often resulting in a retirement shortfall. Therefore, many seniors are turning to a reverse mortgage as a way to supplement their retirement income.1
A Home Equity Conversion Mortgage (HECM), commonly known as a reverse mortgage, is a Federal Housing Administration (FHA) insured loan. A reverse mortgage enables seniors to access a portion of their home’s equity to obtain tax free2 funds without having to make monthly mortgage payments.3 The loan typically becomes due when the last surviving borrower dies, sells the home, or permanently moves out. To be eligible for a reverse mortgage you have to be 62 or older. While there is no maximum age to qualify; there are a number of factors to consider which may impact whether a reverse mortgage is right for you.1
According to the article, the age of most reverse mortgage borrowers is between 65 and 75. That being said, the article also gives several examples of loan officers that have helped older borrowers from age 80, all the way to 101. “Older seniors may not be the norm for reverse mortgage loans, but they’re not unusual either.”1
Since needs change as you age, younger seniors may use their loan proceeds differently than they would as they get older. For example, baby boomers may use the funds to visit family, to supplement living expenses or as part of a financial planning strategy. Older seniors may be more likely to spend their proceeds on health related expenses. While there’s no restriction (age related or otherwise) on how the loan proceeds are used, you must satisfy any existing mortgage balance and/or potential set asides first.1
Although there’s no medical exam required to qualify for a reverse mortgage, lenders are aware of the possibility that mental competency can diminish with age. Therefore, loan officers are careful to look for these signs and take this responsibility seriously. Borrowers are encouraged to include their adult children and trusted advisors in the decision making process. In addition, reverse mortgage counseling is a required as part of the application process. The counseling session must be completed through a Department of Housing and Urban Development (HUD) approved counselor. During the session, the HUD counselor will ask the borrower a series of questions to confirm their understanding of a reverse mortgage. It’s also recommended that you work with a lender who is a member of the National Reverse Mortgage Lender’s Association (NRMLA). NRMLA is a national agency that advocates commitment to the highest ethical standards for the reverse mortgage industry.1
Older borrowers are often able to access a larger percentage of their home’s equity. This is due to a couple reasons. Their life expectancy is shorter, which usually means that the life of their loan will also be shorter. In addition, the older you are, the more equity you typically have in your home and the lower your mortgage loan balance.1
New eligibility guidelines now require all borrowers complete a financial assessment. The purpose of this change is to reduce the number of defaults by ensuring borrowers have enough money to pay property taxes and insurance. Financial assessment requires lenders to evaluate a borrower’s finances, including income and credit history. Many older borrowers are no longer working and are living on social security. Therefore, it may be more challenging for them to meet the income requirements in order to qualify under the new rules.1
Regardless of your age, the decision to get a reverse mortgage should be based on the fact that this product makes sense for you and your retirement goals. If you’d like to learn more about how a reverse mortgage could help you, please use our Reverse Mortgage Calculator or call 800-218-1415.
1 Are you ever too old for a reverse mortgage loan? – bankrate.com, by Marcie Geffner, 2/7/17, http://www.bankrate.com/finance/mortgages/are-you-ever-too-old-for-reverse-mortgage.aspx.
2 Consult your financial advisor and appropriate government agencies for any effect on taxes or government benefits.
3 You must live in the home as your primary residence, continue to pay required property taxes, homeowners insurance and maintain the home according to Federal Housing Administration requirements.