Seniors who are looking for additional ways to access cash could find that a reverse mortgage has the ability to meet their needs, however such an option should be made in consideration of all the ways such a loan has the potential to interact with the prospective borrower’s financial situation. This is according to an advice column published this week in the Washington Post authored by finance writer Ilyce Glink and real estate attorney Samuel Tamkin.
While the original question that set the duo on a path toward discussing reverse mortgages revolved around a senior couple’s frustration at not being able to qualify for a forward mortgage, the key issue for the question was one related to expenses. In terms of accessing additional cash, this is where the reverse mortgage option was presented as a possibility.
“If you need more cash, and you and/or your spouse are at least 62 years of age, you might consider getting a reverse mortgage,” the duo writes. “In a reverse mortgage, a lender will refinance the old mortgage and may also give the homeowner access to a certain amount of their equity as a cash payment. This could come in a lump sum or as a monthly stipend, or just sit in an account like a home equity line of credit waiting to be drawn down.”
While the amount of accessible loan proceeds is dependent on the age of the borrower and his or her spouse (if applicable) along with current interest rates and the appraised value of the home, a reverse mortgage is an option to get the existing monthly mortgage payment out of the way to free up cash flow, the pair writes.
“What most consumers like best about a reverse mortgage is there is no requirement to pay anything on the loan until the home is sold,” the pair writes. “That means, you could live there another 20 years without making a mortgage payment. Once the homeowners die or sell the home, the loan is repaid.”
The duo then points out that the need to continue paying taxes and homeowner’s insurance could be a potential caveat for someone exploring a reverse mortgage option, as well as the possibility that the interest rate will be higher than you will find in a traditional, forward mortgage. The other upfront costs and fees that are associated with getting a reverse mortgage may also be seen as a negative to potential prospects, the pair says, and any reduction in bequeathable assets should be discussed with potentially-affected family members.
“While no solution is perfect, a reverse mortgage might allow a senior to stay in their home during their golden years,” the column reads. “Just be sure to investigate this option thoroughly. In the right situation, a reverse mortgage may satisfy that homeowner’s ability to get cash out of the home or just eliminate the monthly mortgage payment. We also want to make sure that any person who takes out a reverse mortgage understands all of the rules governing reverse mortgages and the things you can and can’t do while you own the home.”
Read the column at the Washington Post.