“A reverse mortgage is a type of home loan that allows seniors age 62 and over to use part of their home equity, and convert it into cash,” according to the U.S. Department of Housing and Urban Development. You don’t have to pay back the loan as long as you’re living in your primary residence.
Before you sign your loan papers, make sure you understand how your loan will work, and don’t be afraid to ask questions.
Outliving Your Money
You’re given a certain amount of money when you receive a reverse mortgage, which is based on how much equity you have available in your home. If you outlive that amount, you’ll still be able to live in your home. You may want to request another appraisal to determine the value of your home, which could allow you extra funds to use for living expenses during your lifetime.
Nursing Home/Assisted Living
When you took out your reverse mortgage, you thought you would be using your property as your primary residence, but if you go into a nursing home or assisted living facility for a year, the balance on your reverse mortgage will be due. One way to avoid this issue is to ask your lender if it would be possible to add someone else living with you to your reverse mortgage loan. If you add a second person, the amount of money you can borrow will be based on the age and credit report of the person who is the youngest.
When you die, your lender will sell your home to cover any balance you owe for your reverse mortgage. Your lender may put a clause in your loan agreement that states that if the sale of your home doesn’t pay off the loan balance, your heirs will pay the difference.
If you take out a reverse mortgage loan through a broker authorized by the Federal Housing Administration, or Housing and Urban Development, you can buy mortgage insurance that guarantees if you have an outstanding balance when you die, your heirs will not be responsible for paying the balance off.
Your family may wish to keep the home, and can either pay off the outstanding balance or get a new mortgage loan.
- HUD.gov: Reverse Mortgages for Seniors
- CFPB. "What happens if my reverse mortgage loan balance grows larger than the value of my home?" Accessed Oct. 21, 2019.
- HUD. "How the HECM Program Works," Accessed Oct. 21, 2019.
- HUD. "Home Equity Conversion Mortgage (HECM) Program (Section 255)," Accessed Oct. 21, 2019.
- IRS. "Are the proceeds I receive from a reverse mortgage taxable to me?" Accessed Oct. 21, 2019.
- LongtermCare.gov. "Paying Privately: Reverse Mortgages," Accessed Oct. 21, 2019.
- CFPB. "If I have a reverse mortgage loan, will my children or heirs be able to keep my home after I die?" Accessed Oct. 21, 2019.
- CFPB: "What happens if I have a reverse mortgage and I have to move out of my home, such as moving into a nursing home or to live with family?" Accessed Oct. 21, 2019.
- CFPB. "What are my responsibilities as a reverse mortgage loan borrower?" Accessed Oct. 21, 2019.
Patricia Coldiron has been been a writer for the past five years, and has been published in Faithwriter Magazine, BoomerWomenSpeak.com, and Christian Ladies Connect. Coldiron recently completed the writing course "Breaking Into Print" from the Long Ridge Writers Group.