For the last half century, reverse mortgages have offered senior homeowners across the nation the benefit of financial security in retirement. As a type of home loan designed for those age 62 years and older, this powerful tool can help individuals access a portion of their home equity and convert it into cash to supplement a fixed income.
Reverse mortgages are attractive because of the unique features they offer, such as the elimination of monthly mortgage payments, relief from one of the borrower’s largest monthly expenses, and greater control over their finances.
However, just like with other mortgage loans, reverse mortgages come with some restrictions and financial responsibilities. The following are examples of some of the conditions and requirements borrowers can expect with a reverse mortgage loan and key considerations to help them cover their obligations, while they enjoy this flexible financial tool.
It’s your responsibility to fulfill the agreed-upon loan obligations, such as continuing to pay property taxes, homeowners insurance, and maintaining basic home repairs, or the loan may go into default.
A popular benefit of reverse mortgage loans is the fact that you remain the owner of your home as you pay no monthly mortgage payment and receive a portion of your home equity in cash. But, along with ownership of the home comes the common obligations associated with it, such as the payment of homeowners insurance and property taxes. These requirements are often cited as reverse mortgage pitfalls when in reality they are simply obligations to be met for all mortgages, traditional or reverse.
Fortunately there are a few steps you can take to prepare for this financial responsibility.
If you live away from your home for more than 12 consecutive months, e.g., by moving into a skilled nursing facility or staying in a second home, the loan may become due and payable.
If you are like most seniors, your home is the preferred setting for care because that is where you are most comfortable. Fortunately, the reverse mortgage loan was designed to help you do just that. Reverse mortgage loans were intended to help seniors stay in their homes as they age, and loan terms require that at least one borrower lives in the home most of the time. A downside to this requirement is that if the last borrower moves to a care facility or another home for more than one year, the loan may become due.
There are several steps you may take to avoid this from happening. Some methods others have used in the past are as follows:
Your heirs’ expectations concerning inheritance may not align with your decision to get a reverse mortgage loan.
A reverse mortgage loan is designed to allow senior homeowners to access their hard-earned home equity to use during their golden years. This has helped many retirees supplement their fixed retirement income and maintain their financial independence.
However, using your home equity in retirement this way may decrease the remaining equity in the home. For many retirees, this tradeoff is well worth their financial security.
Later on at loan maturity, the home is typically sold and proceeds from the sale are used to pay off the loan balance. However, for some heirs who may have expected to inherit the home’s full monetary value, the decreased home equity may come as a surprise. Therefore it is important that your heirs understand your desire to supplement your retirement income with your home equity. In fact, you may want to include them in your reverse mortgage research and decision making process.
The following tips may help you inform your potential heirs about your financial decision:
To learn more about reverse mortgages, loan benefits, risks, and obligations, speak with an American Advisors Group reverse mortgage professional at (888) 998-3147. Thousands of senior homeowners across the nation are already using this special loan to help supplement a fixed retirement income and increase their cash flow.
“Home – The Best Place for Health Care.” Jhartfound.org. NP. ND. Web. 25 September 2015. http://www.jhartfound.org/images/uploads/resources/Home_Care_position_paper_4_5_111.pdf