Reverse Mortgages are a way for senior Texans to receive a loan against their home that does not have to be paid back until the home is no longer used as his or her primary residence. Basically, the equity in the senior’s home is being converted into cash until he or she moves, sells the home or becomes deceased.
The home must be a single-family home or a one-to four unit home where the borrower actually lives. HUD-approved condominium or manufactured homes meeting FHA guidelines may also be eligible.
Who is eligible for a Reverse Mortgage?
Reverse mortgages are for individuals that are 62 years old or older and own a home outright or have a low loan balance and do not have any liens against the home.
Note that the borrower is still responsible for property taxes, property insurance and general upkeep of the home. Failure to do so could result in foreclosure.
The younger the borrower is, the less money they are eligible to receive since a life expectancy factor is considered in the loan payment formula.
If you are a senior that relies on public assistance programs, it is recommended you review the possible impact a reverse mortgage payout may have on these benefits first.
How does a Reverse Mortgage work?
If eligible, the borrower with have different payment options to choose from:
1) a lump sum cash payout
2) equal monthly payments for as long as borrower lives in home
3) equal monthly payments over a specified time period
Repayment is not due until borrower(s) moves, sells the home, or is deceased. At that time, the heirs of the borrower may pay the lien off to keep the property. Alternatively, the lender may foreclose on the property.
A reverse mortgage, like other loans, does accrue interest charges that are due once the first payment is made to the borrower. Often the rate is an Adjustable Rate Mortgage (ARM) with interest compounded monthly.
Note that reverse mortgages tend to have high closing costs and is not a good idea for those that plan to move in the next couple of years or if you are seeking quick money for a temporary emergency.
What other alternatives are there besides a Reverse Mortgage?
Reverse Mortgages tend to be complicated and expensive and may not be the best option for seniors. Other options to consider include:
1) Consider taking out a home equity loan
2) Lower expenses by moving to a smaller home or apartment
3) Seek a reduction or property tax credit on your home because of your senior status