Why Empty-Nesters Should Consider a Reverse Mortgage
The kids are all gone.
The retirement party has been endured.
The house that once sounded like an echo chamber filled with young voices has gone quiet.
And let’s face it, the pension plan doesn’t quite equal the salary it has to replace.
Time to downsize, isn’t it?
As a Realtor, David Jones tells the Greater Tulsa Reporter that he’d love to put the house of a person or couple matching the above description on the market and help find a new one.
But as a person not necessarily wedded to the bottom line, he is compelled to ask if you have ever considered a reverse mortgage?
What is a reverse mortgage? Simply put, if you’ve spent years buying your home and if you and any other co-owner of your house (your spouse, for example) have reached the age of 62, then you might want to consider the idea of having a lending institution buy it from you bit by bit while you continue to live in it as long as you and/or your spouse are alive.
Why stay in your house? You know the neighbors, the area, the shops, and the house itself, which is filled with memories. You might want to just dust the upstairs once in awhile and keep it available to board children and grandchildren who come in from out of town. The rest of the time, you can live happily in the bottom half.
How does it work? Your lender has a formula outlining what you can get with your reverse mortgage. You are guaranteed a monthly payment until you’re 150.
Let’s say you purchased your house free and clear. Depending on what the house is worth, you can either get a lump sum or a monthly stipend that slowly borrows against the worth of the house. Each month the institution has a higher and higher lien on your house that is only settled when the house is sold (just as the institution that holds your current mortgage loan must have that paid off if you sell the house).
Thus, before your heirs can realize any funds from the sale of your house after you die or leave it all debts must be satisfied. But when it comes to encumbering your estate its important to know that the debt is against the house alone, not any other asset you may own.
What are the advantages of a reverse mortgage?
- The principal or interest payments are never due until you move, sell the home or pass away.
- You never give up your property title.
- You can never owe more than the value of the home.
- If you die, the benefits continue until your spouse’s death.
- You can get a reverse mortgage even if you don’t own your house free and clear. The existing home mortgage, of course, be paid off before you can get any monthly benefit but just stopping payment to your mortgage lender may be of inestimable value to your piece of mind.
The following are the basic rules of eligibility to get a reverse mortgage:
- All co-owners of a house (usually husband and wife) must be at least 62.
- The home must either be debt free or have a mortgage that can be paid off by reverse mortgages.
- The property must be single-family or owner-occupied multi-family home. Town homes, detached homes, condominium units and planned unit developments are eligible.