Is a Reverse Mortgage Option the Best Choice?

 Posted on November 13, 2014 in Estate Planning

Some seniors, in an effort to take advantage of the equity they have in their home, opt for a reverse mortgage, as a way to have extra money during their retirement years. A reverse mortgage lets you take a portion of your home's equity without having to take out a home equity loan through a lending institution (which would mean a monthly payment) or sell your home. In order to qualify for a reverse mortgage, you must be 62 years old or older.

With a reverse mortgage, there are no monthly payments like there are with a regular mortgage. Instead, a lender will give you the funds and you do not have to pay anything back unless you move out of the home, sell it or pass away.

There are three types of reverse mortgages available. Single-purpose reverse mortgage are reverse mortgages and are offered by a limited amount of local and state agencies, as well as non-profit organizations. With a single-purpose mortgage, the lender will only allow you to use the funds of the loan for one specific purpose. Examples of reasons allowed include paying property taxes or making home repairs or improvements that are needed. In addition, the fees associated with single-purpose mortgages are lower and even homeowners who have low incomes can qualify.

The other two reverse mortgages, proprietary reverse mortgages and federally-insured reverse mortgages, offer the borrower more options on what he or she can use the funds for, but are more expensive and can also include up-front costs which are expensive. Proprietary mortgages are offered by private lending institutions. The federally-insured mortgages are offered by U. S. Department of Housing and Urban Development (HUD), and are referred to as Home Equity Conversion Mortgages (HECMs).

Recently, new changes were put into place that tightens the rules for reverse mortgages in an effort to help protect seniors. With the prior rules, if a reverse mortgage was in only one spouse's name, and that spouse died, the surviving spouse was required to pay off the loan or face foreclosure. But with the new rule, if that should happen, the surviving spouse can continue to live in the home.

Reverse mortgages may sound like an easy way for seniors to help make ends meet, but they can be complicated. If you have questions about reverse mortgages, or any other estate planning needs, contact an experienced DuPage County estate planning attorney today to discuss your options.