Reverse Mortgage: Is It Right for Me?

As property values continue to go up around the country, many seniors can benefit from a financial tool that allows them to access cash based on the equity in their homes. This is known as a reverse mortgage. As this type of arrangement becomes more popular, it is important to understand exactly what it entails before you can determine whether it might be right for you.

What Is a Reverse Mortgage?

A reverse mortgage is a process that allows homeowners to borrow money from a lender based primarily on the value of the home, the equity in the home, the age of the borrower(s), and the current interest rates. The loan does not need to be paid back until the last surviving homeowner moves out permanently, sells the house, or dies. 

Money from a reverse mortgage can be used for any purpose. Many people use funds from their reverse mortgage to buy groceries, take vacations, or make improvements to their homes.

Another popular reason older people opt for reverse mortgages is to be able to afford home care so that they don’t have to move into a nursing home. The funds from the reverse mortgage can save them from having to use their retirement accounts, which they can then save for healthcare needs that arise in the future.

Who Is Eligible for a Reverse Mortgage?

To qualify for a reverse mortgage, you must be a homeowner over the age of 62. You must also either own your home outright or have the capacity to finish paying off your home mortgage with the funds from your reverse mortgage. Furthermore, you must live in the home and maintain it. The mortgage provider is basically using your home as collateral, and it is in their interest to ensure that it holds its value.

How Is a Reverse Mortgage Paid Back?

One of the benefits of a reverse mortgage is that it does not need to be paid each month. You can do so in a lump sum if you sell the home, or it can be paid by your estate after you die.

Another benefit of reverse mortgages is that they are “non-recourse” loans. In other words, if the house sells at a price below the amount of the reverse mortgage, the seller or their estate will not need to pay the reverse mortgagor more than the proceeds from the sale.

However, it is important to remember that these loans come at a cost. Closing costs may be quite high. Many reverse mortgages have considerable interest rates, and that interest must be repaid when the loan is repaid. Alternatively, your surviving spouse may have to pay the reverse mortgage if they need to sell the house and move into a facility that can better suit their needs. 

Speak to an Experienced Orange County Elder Law Attorney

If you are interested in applying for a reverse mortgage, or if you are unsure whether the benefits outweigh the risks, an experienced Orange County elder law attorney can help you find clarity for your situation. They can also guide you to a reputable reverse mortgage lender should you decide this is the right option for you. If you need help getting started, please feel free to contact one of our law firms located throughout the state of California by calling (800) 244-8814.

If you have any further questions about asset protection planning and strategies to shield your wealth, or if you’d like to have your current asset protection plan reviewed to make sure it still meets your needs, please contact us at our California asset protection office at 800-244-8814 to set up a consultation.