Several years ago, a new product was introduced called the reverse mortgage. This allows a senior to access the equity in their home without ever having to pay it back, under most circumstances. Until this product was introduced, a person could only get a basic conventional mortgage or a home equity loan, but these required payback during one’s lifetime.
A reverse mortgage allows funds to be withdrawn when needed in either a lump sum, over time, or in amounts that are fixed over the course of time until the limit of withdrawals has been reached. In any event, a person need not sell their home to make the payments to the bank unless they leave the home.
There are eligibility rules for reverse mortgages, such as the person must be at least 62 years old and must occupy the home as their principal residence for the majority of the year. Therefore, a second home, which is not the principal residence, would not qualify for the reverse mortgage.
Recently, a new law was passed that allows for greater limits to be accessed for the home valuation to determine what percent of the house may be utilized for liquid cash for the mortgage. These new limits are beneficial in most cases, but should not be used for everyone in all circumstances. Each person must be advised specifically as to the pros and cons of obtaining these reverse mortgages, since the fees are often significant when obtaining them, although many times, the fees are paid from the mortgage and not from funds held by the individual homeowner themselves.
In addition, although you may see recognizable television or movie stars promoting these mortgages in a TV ad, a person must be counseled privately before obtaining a reverse mortgage, so that they will totally understand the nature of the product and the costs involved. Many times, if a person is not 100% competent, their power of attorney or guardian may also be able to access the funds through the reverse mortgage, sometimes only after court approval.
Nevertheless, these types of mortgages are not credit based, and therefore, income and credit history are not necessary for the person to obtain the mortgage. The criteria would be solely home ownership, age, and capacity to contract to obtain the mortgage. However, a reverse mortgage is not right for everybody. Specific and timely advice should be obtained before taking out a reverse mortgage, since once it is obtained, it remains as an outstanding debt and liability. If the house is sold, it will have to be paid off. Not every financial institution provides for reverse mortgages, and one should “shop around” to ensure that they are getting the best deal on interest rate, fees, and accessibility before obtaining this special type of mortgage.
By: Hyman G. Darling, Esq.
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