Should you take out a reverse mortgage?  You are the only one who can answer that question yet it will help you make the decision if you understand how it’s different than a regular mortgage.

What is a reverse mortgage?

With a regular mortgage, the bank loans you money to purchase your home, refinance a current loan, or make home improvements.  Then you make regular monthly payments of principal and interest until the entire balance is paid.  With a reverse mortgage, the bank allows you to use the equity in your home to obtain cash to use for whatever purpose you choose.  You can take the cash in a lump sum or over time.  You are not required to make any payments on the loan.  The accrued interest is added to the balance you owe.

What are the requirements for a reverse mortgage?

  • You must be at least 62 years of age.
  • You must own your home without a mortgage or a very low mortgage that can be paid off with the proceeds of the reverse mortgage.
  • You must have the financial resources to pay the on-going costs of the home such as real estate taxes, homeowners insurance, repairs and maintenance.
  • You must live in the home as your primary residence.
  • You are required to receive consumer education from a Home Equity Conversion Mortgage (HECM) counselor.

When is the loan paid?

When the home is sold or you no longer live in the home, the loan balance, accrued interest, and any other charges must be paid either from the proceeds of the sale or from other funding sources.  Any remaining proceeds from the sale of the home after paying off the loan belong to you or your estate or heirs.

For some people, reverse mortgages can help ease costs in retirement such as high medical expenses.  However, for people who are hoping to leave their home to their children, the presence of it may make it difficult for the heirs to keep the home unless there are other assets that can be used to pay off the reverse mortgage.

Have more questions on reverse mortgages?  Contact us at judith@crystalfinsol.com.

Judith Ackland has more than 26 years of experience in accountancy and financial planning, including seventeen years as a CFO of a diverse business. She started Crystal Financial in 2010 to help a wide array of individuals, families, and business owners better understand their finances and how good financial management could help them achieve their goals. Judith has an MA in Professional Accountancy from the University of Nebraska at Lincoln as well as a Certified Public Accountant Certificate and a Certified Financial Planner designation.

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