By Patrick McCarran, Real Estate Broker
A reverse mortgage can be a helpful tool for your retirement plan. There are generally two options. Options one is to refinance your existing home and receive a monthly payment to supplement your income. Option two is less well known and is to purchase another home with a reverse mortgage loan. In this scenario you either use equity from the sale of your home such as in a downsizing option or moving to a more affordable area. If you have the funds, you can also use those as a down payment, usually half the value.
You may not have planned on having a loan on your home in your senior years, but it may be a good option for you if you can get pass the misinformation. There is a great deal of misleading “facts” about reverse mortgages and a large population that believe what they hear. I will address some of the misinformation.
The government will NOT Own your property. The government involvement is limited to insuring your loan with the actual lender much the same a traditional purchase loan.
You can absolutely sell your property if your situation changes. Just like any other loan you can sell the property pay off the loan, take your equity, and move on.
Nobody will take your property form your or your heirs. If there is equity in the property, then your heirs can sell and take the equity or refinance the home to pay off the balance and keep the home. There are some timelines associated with the process but in my experience HUD is reasonable.
If the value drops, they cannot come after you for the difference. A reverse mortgage is a non-recourse loan. This means that house is the only collateral, and the lender or HUD cannot come after you or your heirs.
Your spouse will not have to move even if they are younger. A law was passed in 2014 that protects a non-borrowing spouse so they can stay in the home until they choose to move.
There are ways however instances in which you could be forced to sell. These include, if you do not occupy the property as your primary residence for 12 months, if you fail to maintain the property, if you do not pay necessary expenses such as property taxes, insurance, HOA fees, etc.
It can be confusing, but part of the application process is a mandatory counseling session with an approved non-partisan counselor. Their job is to answer any questions and get you more information. The fees can be higher than traditional mortgages and HELOCs. But often the benefits outweigh the costs. There are no loan payments, no stringent qualifications, and no required income level to qualify.
It is a fact that you are using your equity and therefore less money will be left to your heirs but that’s your choice to make and it may improve the quality of your golden years.
Be informed and know your options.
Patrick McCarran is a local Realtor and Broker DRE# 01325072. He can be contacted by phone or text at (925) 899-5536, pmccarran@yahoo.com or www.CallPatrick.com. An independently owned and operated office. In association with Realty One Group Elite DRE# 0193160. Equal Housing Opportunity.
