Let’s begin by answering the question, exactly what is a reverse mortgage? In its simplest definition a reverse mortgage is the exact opposite (or reverse) of a standard home mortgage. I will take for granted here that if you are looking into possible reverse mortgage solutions that you have been dealing with or have dealt with a home mortgage for many many years and if you are one of the lucky ones and have managed to pay off that mortgage Congratulations.
In the standard home mortgage you start with zero equity and as you pay down the principal of the original price (debt) of the house your equity increases. With a reverse mortgage a lender makes available to you funds based on your built up equity (payable to you in several different methods that we will discuss later) that you do not have to repay as long as certain conditions are met by you (again conditions to be discussed later) for as long as you continue to live in the home. In a reverse mortgage your debt increases as your equity decreases.
In the standard mortgage your income and credit ratings are used to qualify you for a loan. With a reverse mortgage since existing equity is used you do not need to qualify using credit rating or proof of income. You can qualify with no income at all.
Without going into too many details at this point (will discuss in depth later) I would like to cover a few key questions and concerns that quickly pops to mind among many of us when we first begin considering reverse mortgage solutions as a possible means to accomplish Our goal of being able to remain in our Home.
(a) It is important to note that with a reverse mortgage Title of the property remains in the name of the homeowners, to be disposed of as they wish, with the only attachments being the amount owed on the loan.
(b) Money received from a reverse mortgage (loan advances) is non-taxable and will not affect things like Social Security or MediCare BUT according to the ABA (American Bar Association) if the borrower is on Medicade, SSI, or other public benefits, loan advances may be counted as liquid assets thus possibly affecting their eligibility if their liquid assets are greater than the maximum allowable for those programs.
(c) Could my heirs inherit any debt from a reverse mortgage? Quick answer is no, as long as the home is sold to repay the debt and they will receive any remaining funds if any is left after the sale and repayment of the loan. As long as the home is sold, even if the debt exceeds the home’s value, your MIP (Mortgage Insurance Premium) that you pay insures that the debt can never exceed the home’s value. No matter how long you remain there and receive benefits nor how much the home value increases or even decreases over time. If your heirs should want to keep the home, they may do so BUT they would then be responsible for the entire loan (even if that loan exceeds the homes value)
(d) What is the life of a reverse mortgage? A reverse mortgage lasts until the last surviving owner dies or moves as long as certain conditions are met. However long that may be. (Conditions Discussed in Eligibility Requirements)
(e) Are there any limitations on what a reverse mortgage can be used for? Depending on the type of reverse you seek, some reverses have very strict limits on what they can be used for and while others like the HECM have virtually no restrictions at all.
We will discuss in later articles the best ways to plan and budget. Remember the whole purpose of a reverse mortgage is to be able to keep you in your home.
We as a group (62 and older) have seen our investments soar during the .Com rise only to watch them disappear when the bubble burst. We have been watching inflation and the costs of goods (gasoline for one) steadily increase with wages and salaries not keeping pace. We watched as here recently our 401K packages which we planned to use for retirement have been depleted. Now we are being bombarded with news of upcoming Tax increases coupled with cuts in Social Security, Medicare, and Medicaid.
Unfortunately in today’s economy for many of us, our home is now our single biggest asset left after reaching retirement age. When considering reverse mortgage solutions as a possible tool, it is imperative that we make well informed and educated decisions based on the best information that we can get in order to protect our last greatest asset, Our Home. Even though the definition of What is a Reverse Mortgage sounds simplistic in nature it can be somewhat confusing in the way that they actually function. In our following articles we will attempt to cut through this confusion and cover the key points in an attempt to better prepare you (in other words allow you to make notes for questions you still may have) before your Counseling secession if you decide to proceed further. Next Article: Types of Reverse Mortgages