A mortgage and personal finance adviser discussed reverse mortgages, an option that can provide cash for some senior homeowners, at a Silicon Valley Association of Realtors district meeting in Mountain View last month.
Andy Block of Opes Advisors explained to realtors how a reverse mortgage works. A reverse mortgage is a loan that allows homeowners 62 and older who have accrued considerable equity in their home to convert part of the equity into money that can be used for a variety of purposes. It’s the reverse of a traditional mortgage in that no monthly payment is required. The senior homeowner can receive funds as a lump sum, fixed monthly payment or line of credit within certain guidelines. The entire loan balance becomes due and payable when the borrower dies, moves away permanently or sells the home.
Borrowers need to be aware that they are responsible for paying property taxes, insurance and maintenance, just as one would with a traditional mortgage. Many have fallen into the trap of not paying the fees and are then forced into foreclosure.
To qualify for a reverse mortgage, borrowers must be at least 62 years or older and must occupy the property as their primary residence and have considerable equity in their home. The home must meet minimum Federal Housing Administration property standards, and borrowers must meet Financial Assessment guidelines and complete a counseling session with a Housing and Urban Development-approved counselor.
Block said a reverse mortgage is an option for seniors who want to remain in their home but are short on funds to pay for monthly expenses. The loan also can be used to purchase a new home due to relocation, downsizing or even upsizing. Borrowers can use the funds to pay off a traditional mortgage or to build a safety net for unplanned emergencies, home repairs or health-care expenses.
“A reverse mortgage is not the right solution for everyone,” Block said. “However, if a senior needs cash to handle daily living expenses, enhance their quality of life and/or maximize their retirement savings while wanting to remain in their own home, it is certainly a viable option worth considering.”
Borrowers should be aware that by taking equity now, there would be less equity for heirs down the road, Block said.