Question: I have seen commercials on TV about reverse mortgages. How do I know if they are right for me?
Answer: I have also seen those commercials and they make it sound like a perfect solution for everyone! Like everything on TV this is not always 100% true. I have had a number of clients who used a Reverse Mortgage to help them stay in their home. This can be a very useful tool if your plan is to stay in your home as long as possible, maybe forever.
I have also seen Reverse Mortgages go badly. If you are looking to get some extra money, or to pay off debt, I might not recommend a reverse mortgage.
I also wouldn’t recommend going to one of the companies advertising on TV, especially if it is one you saw in the middle of the night! The regulations in New York State have become more difficult for the banking industry which was designed to protect you. There are not many banks offering Reverse Mortgages right now. There are many other types of investment groups offering them with much less oversight so you need to be careful.
This type of mortgage is actually called a Home Equity Conversion Mortgage (HECM), but we commonly call them Reverse Mortgage. A Reverse Mortgage is a way of getting a limited amount of equity (money) out of your home now. This money can be used to make your home more accessible or useful to you. This money can be used on repairs or services to make your home more accessible, so you can stay in the home longer, or to pay for hands on care.
In situations where you are looking to relieve debt, it may make more sense to sell the home altogether, move to a more appropriate situation for you. Use the income from the sale, to pay the debt off first and then live on your income in a lower cost structured environment. If there is a little money left over from the sale, you have an extra cushion for as long as it lasts.
To qualify for a Reverse Mortgage you or your spouse must be over 62 years of age. The process requires an application and you will meet with a representative to go over the process and how your home is valued. They will do an assessment of your property, research the deed to be sure you own it, and find any liens that may be held on the property. A Reverse Mortgage is the only type of lien on the home if you are approved, so the first thing that the money will be used for is to pay off all other outstanding debts/liens on the property. That may reduce the amount of money you will have available to you to use.
Your reverse mortgage can take a couple of different forms, a line of credit or a lump sum payment or a monthly source of income.
With a Reverse Mortgage, you don’t have a monthly payment that you have to pay back. The money is given to you now (or over time) and the debt continues to accrue interest and fees. When you leave the home, due to death, moving or selling, the Reverse Mortgage Lender gets their money first. If there is money left over, you or your estate receives the rest. If more money is owed than the house sells for, you or your estate are NOT required to pay it back. A Reverse Mortgage will not get you 100% of the assessed value; you are allotted approximately 45% of the assessed value.
It is significant to remember that you still own your home with a Reverse Mortgage.
Reverse Mortgages can be beneficial in the right situation. Of course, there are a lot more details and issues to review, so consulting with professionals and using your and your home’s real-time financial status will give you the best frame of reference.
Senior Life Matters is a community based program sponsored by Lutheran Jamestown. For questions and concerns or to reach Janell Sluga, GCMC, call us at 716-720-9797 or e-mail at SLM@lutheran-jamestown.org.