In most cases, a home is a person’s most treasured asset. You raise your family there; your grandchildren visit you.

It’s definitely the most expensive item you’ll ever buy, and once you pay off the mortgage, or accrue substantial equity in your home, it becomes a valuable asset in your financial portfolio.

As you age, you will likely need to face the options of either selling your home and using the equity to enter a retirement home or senior living situation, or stay in your house and let the equity enable you to stay home through a reverse mortgage.

But before you make that decision, there are several options for you to consider:

  1. Does your home meet your physical needs or do stairs or other factors get in the way of you being able to stay in your home long-term? For example, is the yard work more than you can handle?

  2. If you were to stay in your house and not move, would you need in-home care? Do you have sufficient finances for in-home care?

  3. Are there other housing options at your disposal?

  4. Would you feel less isolated in a more communal setting?

As you age, you will have several options:

  1. You can stay at home and hire help or rely on family members if they are available.

  2. You can move into a senior apartment or retirement community where rents may be based on income.

  3. If you need some care, an assisted living center may be a better option for you. In this case, meals are prepared and shared in common dining areas, and help is available on a 24-hour basis.

Reverse Mortgages

If you are healthy enough to stay in your home and it’s a safe environment and easy to care for, a reverse mortgage may be the best option for you.

The benefit of a reverse mortgage is that you’ll no longer need to make monthly payments, but you will need to continue to pay your property taxes and insurance and keep up with general maintenance of the home. Those responsibilities won’t change.

Presently, there are two types of reverse mortgages available

  1. Home Equity Conversion Mortgage – Ninety-five percent of reverse mortgages fall into this category. The Federal Housing Administration, which is part of the U.S. Department of Housing and Urban Development, insures this program.

  2. Propriety reverse mortgages – These loans are best suited for people with high-value houses. Banks, credit unions, and other financial companies negotiate them.

Home Equity Conversion Mortgages

There is a lot to learn about Home Equity Conversion Mortgages (HECM).

Here is some fundamental information:

  1. A HUD-approved appraiser must determine the value of your home.

  2. At least one of the homeowners must be 62 years of age or older. Because the reverse mortgage is determined by life expectancy, the older the borrowers are, the more money the borrowers will receive.

  3. You can establish a line of credit that allows you to borrow money as needed. The money must first be used to pay off any existing loans you have on the property.

  4. The home must be in good condition, meet HUD standards, and your current mortgage must be small enough that you can pay off the mortgage with the funds you receive through the HECM.

The money you receive through the reverse mortgage needs to be used to pay off your home loan. Once the obligation is fulfilled, you can use the money for living expenses, property expenses, home repairs, or other expenses.

Closing costs for a reverse mortgage are the same as a traditional mortgage. Instead of paying the fees, you can finance the closing costs.

All HECM borrowers are assessed for their financial stability. Do you either earn enough or have enough in savings or investments to pay off the mortgage? Will you be able to keep up with repairs on the house? The lender will need to assess all of these and similar factors.

Some Advantages to a Home Equity Conversion Mortgage

  1. In some cases, it’s an advantage to know that interest rates aren’t based on credit histories, and credit requirements are less strict.

  2. There’s no time limit on how long you can keep the loan before you pay it off.

  3. Funds available from the HECM line of credit can increase over time.

  4. There are no monthly payments to make on the HECM provided one borrower continues to live in the house.

Other Considerations for a Home Equity Conversion Mortgage

  1. The HECM loan needs to be large enough to pay off the old mortgage in full.

  2. Interest and mortgage insurance are added to the loan instead of being paid monthly.

  3. You’ll have less to leave as an inheritance or less to keep if you decide at a later time to sell the house and move.

  4. If you don’t keep up with repairs, homeowners insurance, and property taxes, you could face foreclosure.

Do you have questions about starting the process for a reverse mortgage? Call me today!

 

Thanks for reading!

Carissa Abazia

@CarissaMortgage