The adage, home is where the heart is, is a truism. Human beings have a need for shelter. Housing is a basic need. Much time, effort, and money are expended in our lifetime to obtain and keep a home. For many individuals entering retirement, their home is their most valuable asset. A sad truth of aging, however, is that you may not be able to care for yourself in your home as you age.
A big old house is harder to keep because it requires maintenance and repairs to maintain. Routine maintenance like mowing the lawn is impossible to perform if for example, you have a bad hip. Paying someone to do it also gets harder, because at the retirement stage in life, your income is fixed with little wiggle room to go off budget. Even more difficult is surviving a natural disaster and finding help to rebuild or repair your home. Paying for major repairs and obtaining qualified help without being ripped off is even more challenging. It’s not surprising that seniors turn to reverse mortgages to remain in their home as long as possible.
A brief overview on reverse mortgages
A reverse mortgage is a financial tool that allows people to convert their home equity into cash. To qualify reverse mortgage loan applicants, need to be aged 62 or higher, live in their home, and own their home. In simple terms there are no monthly payments. Borrowers are still responsible for paying home insurance and property taxes though.
Specific rules for reverse mortgage transactions vary depending on the laws of the state. In New York, as well as other states, the Federal Housing Authority’s insured home equity conversion mortgage (HECM) program known as the reverse mortgage, insures almost all reverse mortgages. An HECM loan is a non-recourse loan. A non-recourse loan is a debt secured by collateral, usually real estate, and in the instances of reverse mortgages, the home itself.
Borrowers are able to convert their home equity into cash in the form of monthly income, a line of credit, and a lump sum capped at 60% of the loan amount the first year of the loan. The original borrower(s) are not responsible to pay any loan balance that exceeds the net-sales proceeds of their home.
Preying on seniors
A recent expose, by USA Today, found that nearly 100,000 reverse mortgages had defaulted in recent years, hitting low-income urban and fixed-income homes the hardest. The loan brokers and lenders, using aggressive door-to-door or telephone pitches focus on these communities relying on the homeowner’s lack of financial sophistication and financial difficulties to talk people out of their home equity with high interest
Make sure you check out our next post that will examine what happens when a reverse mortgage is due and payable. An estates plan lawyer is able to help you plan for your long-term housing and medical care needs as you age and your medical needs increase. Before signing away the value of your home explore all options available to you to achieve your wishes.