You’ve probably seen the commercials all over TV. I am not talking about prescription drugs but rather reverse mortgage. These federally-insured loans were designed to help seniors to tap into the equity they’ve built up in their homes without needed to make monthly mortgage payments.
Well, that is the plus side. But one issue which can affect couples who take out a reverse mortgage is what will happen to the property when one of the borrowers dies and the other wants to remain in the home without the threat of foreclosure. The situation is even more complicated when the spouse is not listed on the reverse mortgage.
As such, a new-ish rule has been set up to help millions of spouses remain in the home they love after the borrower dies, providing the spouse continues to pay the insurance, property taxes, and utilities. This reverse mortgage rule is a big help to spouses and families as it makes the transition period that much easier.
Under the old rules, a spouse would be forced to fully repay a reverse mortgage when the borrower died. However, a federal court viewed this as unfair given that the rule had the potential to evict a widow or widower.
Now, this is not to scare anyone who is thinking of a reverse mortgage but it does highlight the need to have a plan in place for what will happen after the borrower passes away. Besides the new rules, another option is to have a life insurance policy set up to help pay off the amount due as this will reduce the financial burden for the heirs almost completely.
If you haven’t heard of them, reverse mortgages are set up for seniors over the age of 62 to turn the equity in their home into cash. As mentioned there is no monthly payment. Instead, the principal and interest accrue until the borrower either sells or no longer lives in the home. To find out more about how a reverse mortgage would work, then check out the calculations provided by https://reverse.mortgage.
The popularity of reverse mortgages has grown in recent years and this is due to the fact that many seniors need some extra help to secure their financial stability during retirement. According to the Consumer Financial Protection Bureau, nearly 740,000 reverse mortgages were active in the U.S. in 2011. Since then the number of loans has increased to nearly one million.
Meanwhile, the National Reverse Mortgage Lenders Association estimates that there are nearly 48 million older Americans today. Of them, women have nearly half the annual income of men and this pay gap means that they are more at risk when their husband passes – especially if joint property has not been properly secured.
If anything, this points to a market for reverse mortgages that will continue to grow for the foreseeable future as Baby Boomers currently own close to 32 million homes in the U.S. This growth also creates some challenges as the average age of those taking out a reverse mortgage has fallen from 76 in 2000 to under 72 today.
Even with required counseling, some borrowers thought that these loans were a government-sponsored endowment – like Medicare. However, this is not the case and while reverse mortgages are non-recourse loans, they do need to be repaid.
As such the new rules are a common-sense change to reverse mortgage lending practices given that they allow for the loan to be written even if the younger spouse is under the age of 62. To balance this out, the payout amount is slightly reduced to reflect the longer anticipated life of the loan.
While reverse mortgages have been around for a while, they are not always the best option for every senior. This is not to say that reverse mortgages are bad, rather the decision to take on such a loan should depend on the borrower’s financial situation.
For those borrowers who decide that a reverse mortgage is right for them, they get the advantage of being able to tap into the equity in their home without needing to touch their other accounts. Just remember that if your spouse is under 62, the new rules will make sure they can stay in the home and this is a big help to families across the country.