Like most Americans, you probably want to stay in your own home as you grow older. However, as it gets harder to do things on your own, you may need a helping hand with everyday tasks. It can be costly to pay for help at home, along with home modifications and other health needs. In the past, when an older person had trouble living alone, that was a signal that it was time to move in with family or go to a nursing home. But for most people this is no longer the case. Today you can receive a wide range of services and supports in your home.
New advances in medicine and technology are helping even people with complex medical problems to stay in their homes for many years. This is often called "aging in place". For many people, these extra costs are a real burden. Older Americans often hold onto their home as a nest egg in case they need extra money. But when that "rainy day" arrives, how do you tap the equity in your home?
Some people may tell you to sell the house and move to assisted living or a nursing home. There is another option. If you've owned your house for many years, it could be worth a lot more than you paid to buy it. Home equity is the difference between the appraised value of your home and what you owe on any mortgages. A reverse mortgage can help you convert some of your home equity into cash and continue to live at home for as long as you want.
Long-Term Solution-Reverse Mortgage
If you expect to live in your current house for several years, you could consider a reverse mortgage. Reverse mortgages are designed for homeowners age 62 and older. These types of loans are called "reverse" mortgages because the lender pays the homeowner. To qualify for this loan, you must live in the home as your primary residence. With a reverse mortgage you continue to own your home and can never be forced to leave, as long as you maintain the home and pay your property taxes and insurance.
If there is an existing mortgage on the property, the proceeds of the reverse mortgage are typically used to pay off the loan. This can increase the cash you have available each month, because you no longer have to make payments on your regular mortgage. After existing mortgage is paid off, any additional equity in the home can be taken by the homeowner in a tax free lump sum payment disbursed at the time of the reverse mortgage settlement.
Unlike conventional mortgages, there are no income requirements for these loans. You do not need to make any monthly payments for as long as the homeowner(s) remain in the home. When the last homeowner moves out of the house or dies, the loan becomes due. You (or your heirs) will never owe more than the value of the home if you sell the property to repay the loan, even if the value of your home declines. If your heirs choose to keep the home, they will need to pay off the loan at 95% of the fair market value of the home, as determined by a third-party appraiser.
Loan closing costs for a reverse mortgage are the same as you would pay for a traditional "forward" mortgage. These include an origination fee, appraisal, and other closing costs (such as title search and insurance, etc.) Most of these closing costs are regulated, and there are limits on the total fees that can be charged for a reverse mortgage.
Does it make sense for you to do a reverse mortgage? It is a good idea to know the facts and myths about reverse mortgages, before you make a decision.