With reverse mortgages recently becoming available to co-operative housing shareholders in the state of New York, a series of potential benefits and pitfalls should be explored by anyone considering engaging in such a loan while living in a co-op. This is according to a new column at New York real estate website Brick Underground.
With the recent passage of a law in the New York legislature and its signing by the governor, New York co-op residents will begin to have access to reverse mortgages in May and should understand all the details sufficiently before making a decision to proceed, the column reads.
“Those who qualify should make sure they understand the potential pros and cons of using this product,” it says. “A reverse mortgage is a type of home loan in which the bank pays the owner a monthly stipend based on the home’s value and the owner continues to live in their apartment.”
If a co-op is being considered by a current co-op resident, they should discuss it with heirs and include the possibility that the co-op may not be available to them as an inheritance according to Andreas E. Christou, an attorney wth New York City-based firm Woods Lonergan.
“The downside to reverse mortgages, particularly with a cooperative, is that a property may increase in value, sometimes substantially, beyond the amount conferred by the reverse mortgage,” Christou tells the publication. “The reverse mortgage lender would be entitled to the property as well as any equity or increase in value, unless the reverse mortgage loan amount can be paid off in full, either by sale or otherwise.”
If the apartment is worth more than the loan balance upon the borrower’s death, heirs can sell the unit and pay off the balance while pocketing the rest of the money, according to Klara Madlin of Klara Madlin Real Estate.
“It is very stressful for older people to have to move from homes they have lived in for many years,” she says.
Having a reverse mortgage as an option for co-op residents could have been a “life changer” for many elderly co-op shareholders “if it had been available in the past,” the column reads regarding Madlin’s expressions.
Read the column at Brick Underground.