All About Reverse Mortgages
Information
accurate as of
April 11, 2018
in Blog

All About Reverse Mortgages

A reverse mortgage is a loan that allows homeowners 62 or older to convert a portion of their home equity into cash while staying in their home and maintaining the title.1 This loan can be a wonderful financial tool for seniors to use, but it is important that they are properly educated about the product. The National Council on Aging (NCOA) recently published the list of facts below to help seniors learn all about reverse mortgages.2

A Reverse Mortgage is Not A Traditional Home Loan
Reverse mortgages are only available for homeowners 62 and older. The loan allows seniors who have equity in their homes to access a portion of it as usable funds. No monthly mortgage payments are required and the loan does not become due for as long as the borrower occupies the home as their primary residence and continues to meet the loan obligations.3

Eligible borrowers may be able to eliminate their monthly mortgage payment3 by paying off their conventional mortgage with a reverse mortgage.

Most Reverse Mortgage Borrowers Use Their Funds to Pay Living Expenses
The funds from a reverse mortgage can be used any way the borrower chooses. However, most borrowers use the money for their day to day needs, not wants. The funds are generally used to pay off existing debts, hire in home medical care, make home renovations, or to cover ongoing living expenses.
Reverse mortgage borrowers are highly encouraged to use the proceeds from a reverse mortgage in a responsible manner and avoid superfluous spending to avoid a potential financial hardship down the road.

Reverse Mortgages Should Be Used Sooner Rather than Later
If a reverse mortgage is used as part of an overall financial plan it can help avoid financial stress down the road. The loan should be set up sooner rather than later so the funds are available when they are needed.

Setting up a line of credit with a reverse mortgage gives peace of mind to seniors by providing a financial cushion for unexpected expenses. This option is best suited for seniors who are not experiencing an immediate financial stress, but want to have the peace of mind that they will have funds readily available to cover unexpected expenses.

Seniors who are worried they don’t have enough money saved for retirement may be able to use a Reverse Mortgage to receive monthly checks. These payments supplement the borrower’s income, helping to cover ongoing living expenses.

Baby Boomers are Likely To Take out a Reverse Mortgage
The Center for Retirement Research at Boston College recently found that Americans over the age of 65 often have more cash in their homes than in 401(k)s, IRAs or other investments. The average U.S. homeowner age 65- 74 has $125,000 in financial assets. By comparison, those same individuals have an average of $150,000 in home equity.4

With the majority of their wealth tied up in their home equity. Many baby boomers are expected to turn to reverse mortgages to help them fund their retirement.

All Potential Borrowers Must Get Counseling Before Applying
Federal law states that anyone who wishes to apply for a reverse mortgage must receive counseling through an agency approved by the Department of Housing and Urban Development (HUD). The counseling session ensures that the borrower understands the loan process and costs associated with a reverse mortgage. The counselor helps the borrower weigh the pros and cons of a reverse mortgage and discusses their options with them.

Some Reverse Mortgage Borrowers May Still Face Foreclosure
Reverse mortgage borrowers are still financially responsible for their homes. They must continue to live in the home as their primary residence, pay for homeowner’s insurance and property taxes, and maintain the home according to the Federal Housing Administration (FHA) guidelines. Failure to comply with the loan obligations can trigger a loan default that may result in foreclosure.

If you are a senior homeowner interested in learning more about a reverse mortgage try out reverse mortgage calculator above to receive a quick estimate of how much you may be eligible to receive.

Important Disclosures:
1 You will retain the title and ownership during the life of the loan, and you can sell your home at any time (at which time the loan becomes due). The loan will not become due and subject to repayment as long as you continue to meet loan obligations such as living in the home as your primary residence, maintaining the home according to the Federal Housing Administration (FHA) requirements, and paying property taxes and homeowners insurance. Failing to meet these requirements can trigger a loan default that may result in foreclosure.

2 National Council on Aging. Reverse Mortgage Facts for Seniors. https://www.ncoa.org/economic-security/home-equity/reverse-mortgages/reverse-mortgage-facts/
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 FHA requirements. Failure to meet these requirements can trigger a loan default that may result in foreclosure.
4 Center for Retirement Research at Boston College. Using Your House For Income In Retirement. http://crr.bc.edu/wp-content/uploads/2014/09/c1_your-house_final_med-res.pdf