mortgage

Should I apply for a reverse mortgage?

Senior homeowners frustrated by a drop in their retirement investment income may want to consider a reverse mortgage.

The amount of money available for a reverse mortgage (senior homeowners age 62 and older qualify) is based on the age of the homeowners, the equity in the home, interest rates and FHA loan limits for the area. Borrowers are qualified based on their age and home value rather than on credit score or income.

Borrowers are allowed to stay in their homes indefinitely if they keep up with property tax payments and homeowners insurance premiums, and maintain their homes in reasonable condition. However, owners must keep the property as their primary residence. The reverse mortgage loan will be repaid when the home is sold or when the owners die.

If the reverse mortgage amount is larger than the value of the home, the owners and their heirs will not be required to make up the difference.

A reverse mortgage works best for seniors who want to stay in their home indefinitely, since closing costs and fees are typically higher than for a traditional mortgage. Reverse mortgages generally are approved for 35 percent to 55 percent of the home equity. Borrowers can wrap the closing costs and other fees into the loan amount.

Reverse mortgage options

Borrowers can receive reverse mortgage proceeds in several ways:
  • A line of credit, accessed only when funds are needed.
  • A lump-sum distribution for paying bills, including paying off the original mortgage.
  • A monthly income.
  • A combination of the above options.

A reverse mortgage can also be used for a home purchase, with the closing including both the home purchase and a reverse mortgage on the equity in the home. For seniors purchasing a home with significant cash, a reverse mortgage allows immediate access to equity.

Most reverse mortgages require the applicant to attend informational counseling sessions before the loan is approved. This requirement ensures applicants understand the full implications of reverse mortgages for themselves and their heirs.

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