All my money is in my house. What’s the deal with reverse mortgages?

Wondering about accessing the equity in your home to fund your retirement? Here you’ll find your basic reverse mortgage questions answered.

A reverse mortgage can help you access the equity in your home, as long as you are at least 62 years old. It is a means by which you can borrow money based on the total worth of your home. Given that today’s skyrocketing housing prices mean that we need to spend a larger portion of our income on housing than ever before, it’s fairly common to service our mortgages to the detriment of an ideal level of retirement savings. Most financial planners will tell you not to consider your home your retirement plan — at least not your sole retirement plan — but the truth is our housing gobbles up a lot of our resources.

The major difference between a reverse mortgage and a traditional mortgage is that repayment can be made at a much later date, as opposed to in ongoing installments each month. That can give you a lot of financial stability and flexibility during your retirement. Here are some other basic reverse mortgage questions and answers.

How Can You Qualify for a Reverse Loan of This Sort?

A reverse loan like this is also sometimes called a home equity conversion mortgage. In order to qualify for an HECM you and anyone else signing the loan agreement, such as your spouse, must be at least 62 years of age. You must also own the home in question and have no outstanding mortgage or agree to use HECM funds to pay your existing mortgage off immediately. You must also prove to your lender that your home has enough equity to borrow against and that you have the financial stability to continue making insurance and property tax payments on the property on an ongoing basis. If you do go this route, you’re going to want to be conservative in your estimates so you don’t get in the messed up situation of hoping you die sooner rather than later so that you don’t run out of money. But if you’re in a good position with lots of equity in your home, it’s a good way to access cash to live off, simply subtracting it from an amount you’d leave to the beneficiaries of your will. You can’t take it with you, as they say, and your heirs don’t necessarily need to inherit the entire value of your estate.

How Can the Money be Borrowed and Used?

There are no limits on how you can borrow or use your reverse mortgage money. You can request ongoing small payments, a single large payment, or a credit line against your home equity, if you want to know the exact amounts you can expect to be paid on a monthly basis you should use an online reverse-loan calculator to do the financial calculations heavy lifting for you. When you receive the money you can use it to cover any expenses you want, whether they are one-time or ongoing expenses. You can also use the money to help family members or for fun purposes, such as a family vacation. Reverse mortgage flexibility of payment receipt and use makes such loans extra useful during retirement when funds are short and unexpected expenses can easily arise.

When Must Reverse Mortgages be Repaid?

The due date on most reverse mortgages is six months after the last loan signer moves out of the home or passes away. For example, if you and your spouse both sign the loan agreement and one of you passes away the other can continue to live in the home. However, if yours is the only name on the agreement and you pass away your spouse will have six months to pay the balance.

What Happens to Your Home After You Pass Away with a Reverse Mortgage Still Active?

If you pass away while there is still a reverse mortgage due and no other living residents of your home co-signed the loan agreement with you then your heirs will have the option of paying the balance within six months or allowing the sale of the home. If your home is sold for more than the balance of the loan the extra funds will be given to your heirs. If the sale amount is lower than what is owed then the remaining debt will be canceled by the lender.

Can Reverse Mortgages be Canceled or Changed?

Reverse mortgages are binding contracts which cannot be cancelled. However, you may be able to repay a reverse mortgage early without incurring an early repayment penalty. Although, you may still be required to pay hefty fees for the loan discharge and related administrative tasks. Therefore, you should think carefully before ever signing a reverse mortgage agreement.

Why do I Have to Talk to a Reverse Mortgage Counsellor?

If you want to obtain a reverse mortgage you will be legally obligated to talk to a reverse mortgage counselor first. Such counselors are trained professionals who can tell you all about this unique loan process. Your chosen counsellor will make sure you fully understand the good and bad points of reverse mortgages before entering into one. Your counsellor will also send you an HECM Counselling Certificate to prove you completed the counselling process. Your lender will require that document before agreeing to give you the loan you are requesting.

 

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Brandie Weikle

About Brandie Weikle

Brandie is a long-time parenting editor, writer and spokesperson. Most recently editor-in-chief of Canadian Family magazine, Brandie has also been the parenting and relationships editor for the Toronto Star, founding editor of two Toronto Star websites, and an editor for Today's Parent. Brandie is a single mother of two in Toronto and a frequent television and radio guest on parenting topics. A former digital director at House & Home Media, she also consults on digital audience engagement. Contact her here. View all posts by


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