Studies have shown that most people would prefer to remain living in their homes as they age. But sometimes finances become a concern, and people struggle to afford recurring expenses or new healthcare costs.
AARP surveys have consistently found that nine out of 10 Americans aged 65 and older indicate a strong desire to remain in their homes for as long as possible. If that description fits you, but you’re “house rich, cash poor,” a reverse mortgage is a financial tool to consider.
Through the federally-insured Home Equity Conversion Mortgage (HECM) program, homeowners who meet the 62-and-older age requirement can access the equity they’ve built up in the form of a non-recourse loan.
Borrowers can receive their loan proceeds in a few different ways: as a lump sum, monthly payment, line of credit, or some combination of the three.
The amount you’ll receive from a reverse mortgage depends on a few factors, including your age, your home’s value, and current interest rates. Generally speaking, the older you are, the larger the loan you’ll qualify for.
As a reverse mortgage borrower, you can use those funds however you see fit, including to pay for in-home care if you need it. If you have an existing mortgage on your home, part of the HECM proceeds would go toward paying off that mortgage, freeing up your monthly cash-flow even more.
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The money you get from your reverse mortgage could also be used to better equip your house for aging in place, whether it’s installing ramps or grab bars or general remodeling, updates, or repairs.
Another benefit of the HECM program is that there’s no income or credit requirement. Sometimes older borrowers have a difficult time obtaining loans or lines of credit because they’re retired or on a fixed income.
For a reverse mortgage, borrowers just need to meet the age requirement, have equity in their home, maintain it as their primary residence, and agree to keep up with property maintenance, taxes, and insurance. Additionally, you will retain the title to your home.
The term of a reverse mortgage loan ends once the borrower leaves the house or passes away. At that point, the loan becomes due and payable to the lender.
The loan is non-recourse, meaning you or your heirs will not have to repay more than what your house is worth even if the balance ends up exceeding your home’s value at the time it comes due.
Should your heirs want to retain ownership of your home when the loan comes due but the loan balance is greater than your home’s value, they have the option of buying the property from the lender for 95% of its appraised value. Otherwise, your estate must repay the loan in full in order to keep the home.
Your heirs or estate will assume the value of any remaining equity in cases where the home has additional equity beyond what was needed to repay the lender for the reverse mortgage loan.
If your goal is to remain in your current home but you’re concerned about your financial situation, a reverse mortgage could enable you to afford your living expenses, receive in-home care, or pay off an existing mortgage.
To learn more about reverse mortgages visit HUG.GOV.