Reverse Mortgages – Are they for you?

Stephen Ganns, https://gannsblog.wordpress.com, offers an inside look at reverse mortgages.One of the things people hear about today as they plan for their retirement and such, are reverse mortgages. Let’s try to simplify this product as best we can in the following few paragraphs.

What is a reverse mortgage?

A reverse mortgage is a type of home loan that lets you convert a portion of the equity in your home into cash. 

How can you qualify for this type of mortgage?

To qualify, you must be 62 years of age or older. You must own your home  mortgage free, or have a low mortgage that can be paid off with the proceeds of the reverse loan, and you must live in the home.

What type of home is eligible?

Obviously, the type of home eligible would be single family homes, but a 2-4 unit rental property is also eligible when at least one unit is occupied by the borrower.

Why not get a home equity loan?

When I first came upon this product, I wondered what the difference was between a reverse mortgage and a home equity loan. A home equity loan requires that you make payments, even if it is just the interest, every time you use any of the loan. Reverse mortgages require no monthly principal or interest payments whatsoever.

What happens if I pass away? Will the bank own my house?  

As with any mortgage, the bank does not own your house but the bank has a lien on your house. The difference between a home equity loan or reverse mortgage is the reverse mortgage cannot be paid back. Upon the owner’s death or when the owner of the home moves out for medical or other reasons, the amount of the reverse mortgage immediately becomes due.

This problem can easily be resolved by the heirs refinancing the property quickly in order to pay off the mortgage. Usually, there is enough equity in the home, even when the person leaves, so that the heirs can quickly refinance the home.

In the absence of that, the estate would probably do well to have some kind of insurance to help the heirs come up with the cash to pay off the loan.

How much money are you able to get on a monthly basis?

There are many ways to take this money. You can take it on a monthly basis or it can be taken in a lump sum. The amount of money you get will depend on the age of the borrower and the value of the home, etc.

This is a wonderful product for people who bought homes years ago and have tremendous equity in their homes. A reverse mortgage is one way to be able to have your home provide you with extra retirement income. Let the home pay you for all the years you worked to build up that equity.

Stephen J. GannsStephen J. Ganns, CPA
914-682-7007
steve@gannscpa.com
www.gannscpa.com

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