Reverse mortgages are loan options that are available to seniors aged 62 or older. These types of mortgages can be used to pay off debt; pay living expenses, medical expenses, or home renovations; or purchase a home. For older clients, reverse mortgages make it possible to maintain a reasonable standard of living, even if they’re living on a fixed income. Here are a few things that are good to know about these loans.
You Must Meet Certain Qualifications
The first qualification, obviously, is that you must be at least 62 years of age. Other qualifications are as follows:
- You must be a homeowner. A reverse mortgage is an equity loan on an existing home that you own. It borrows against the equity that has been built up, which means that the borrowed amount is based on the difference between your home’s fair market value and the balance of your mortgage.
- You need to meet the financial eligibility requirements of HUD. This type of loan is insured by the Federal Housing Administration (FHA), which means that only those of certain income levels are eligible.
- Your home must have moderate to significant equity. In other words, you will need to have a portion of your mortgage paid off.
- You must live in the home. A reverse mortgage cannot be taken out on an investment property.
- You must have the financial means to pay ongoing property expenses, such as taxes and insurance. However, you can elect to set aside reverse mortgage funds to pay for these things.
You Are Not Required to Make Payments
A reverse mortgage is different than a home equity loan in that there are no required monthly payments. Instead, the interest on any amounts you use will be added to your reverse loan balance. However, it will need to be paid if you move out of or sell the home or if you become ineligible for the program or if the last remaining borrower passes away.
Your Heirs Will Not Be Required to Pay the Balance
Although a reverse mortgage becomes due and payable after the homeowner’s death, the home doesn’t automatically go back to the lender. Heirs will have several options for handling the home. If they’re able to pay off the loan, they can keep the home. Otherwise, they will need to sell it and apply the proceeds to the reverse mortgage. If more is owed than what the house sells for, heirs will not be required to pay the balance.
Your Social Security and Medicare Benefits Will Not Be Affected
A reverse mortgage will not affect your eligibility for social security or medicare benefits. However, if you are receiving Medicaid or Supplemental Security Income (SSI) benefits, make sure you use all reverse mortgage funds in the same month that you receive them. Otherwise, the reverse mortgage proceeds will be counted as an asset and could affect your eligibility for those programs. For Medicaid, the asset limit (which includes all bank accounts and liquid accounts) is $2,000 for an individual and $3,000 for a couple.
You May Use the Funds for Anything
There are no restrictions on what your reverse mortgage funds can be used for. Borrowers often use these funds to cover large expenses, such as medical expenses or home repairs and improvements, to cover deficits in income, or even to prevent foreclosure. Reverse mortgages can be used to help homeowners get through difficult financial situations or simply to supplement regular income. Either way, they can help to lessen financial strain.
A reverse mortgage can be a helpful financial instrument for seniors. If you’re considering this type of loan for yourself or your parents, it’s important to speak with a trustworthy lender that considers your unique situation and needs and guides you to the best solution.