By Dave Murnen
and Pat Beaty
Between inflation, rising medical costs, lower saving rates and fewer employer pensions, getting by in retirement is a concern for many. When you add the fact that people are living longer and thus spending more time in retirement, the scenario becomes “Less Money Available” coupled with “More Money Needed” – not a good pairing!.
Last week we talked about the growing popularity of reverse mortgages to help provide money for seniors in retirement. Today we want to give you an idea of some of the requirements as well as some things to seriously consider.
REVERSE MORTGAGE
To review: A reverse mortgage is a financial tool that turns your home equity into cash which can be used for any purpose you decide. Unlike a traditional mortgage, you do not make monthly payments. Instead, you receive money, often in the form of monthly payments, possibly in the form of a lump sum, as a line of credit or some combination of these payments.
Barbara McDowell, a reverse mortgage specialist with Bank of the Pacific, sat down with us recently to discuss some of the ins and outs of the reverse mortgage, including the applicant’s requirements and things to consider.
For starters, to be clear, this is a financial tool only available for a homeowner who is 62 years or older and has at least 50 percent equity in their home.
The reverse mortgage allows that 62-year-old or older senior to use the equity of their home to receive money from a lending institution and to continue living in the home until they move, sell or die.
Recent legislation has extended the protection to a non-borrowing spouse or partner that is younger than 62. Thus, grieving widows or widowers cannot be thrown out of their home if they continue to fulfill the requirements of the reverse mortgage loan.
No repayment is due if:
• You live in the home as your primary residence and are not gone for 12 months in a row.
• You pay your property taxes and insurance for your home.
• You maintain the home according to FHA requirements. (See your lender for details.)
SOME THINGS TO CONSIDER
Like any financial strategy, there are advantages and disadvantages to a reverse mortgage. It is simply a better fit for some than others, McDowell said. (However, McDowell also gave us interesting ideas about some creative uses that we will discuss next week.)
So, even if you qualify – you are 62 years old or older and have at least 50 percent equity in your house and your credit history has been approved – is the reverse mortgage a good fit for you? McDowell suggests you consider the following:
• Is this the home you see yourself in as long as you are physically able? Is it a home that you and your spouse can age comfortably in?
• When you look at your lifestyle needs and how the numbers work out, is a reverse mortgage a true benefit to you?
• Do you clearly understand your responsibilities in a reverse mortgage? If those are not fulfilled, you could lose your home. Remember, they include paying the taxes and insurance as well as living in the home and maintaining it.
• Do you understand the costs of a reverse mortgage loan? Like any loan, there are origination fees as well as interest charges.
• Do you understand what happens in the end? Are you clear that when you sell the house or move the loan is due? Or, if you die, your heirs will still need to sell the house, paying the bank the balance owed. It is possible that there will be little or no equity left. The good news is that even if you live a long time and the loan balance grows higher than the home is worth, your estate and or heirs would not have to pay the shortfall. HUD would step in to pay the lender the balance from the mutual mortgage insurance fund. Thus, the estate, heirs and lender are protected.
MORE TO COME NEXT WEEK
We hope you are getting a clearer picture of what a reverse mortgage loan is and whether it might be a good financial tool for you or perhaps a parent.
At the very least, we hope we’ve given you some things to think about and enough information to ask good questions.
Next week we hope to give you a variety of ways a reverse mortgage can be used and perhaps some real-life examples of those who have benefited from this type of financing.
In the meantime, if you have questions, contact Barbara McDowell at Bank of the Pacific (360) 441-5794.
Barbara McDowell is a Reverse Mortgage Specialist, NMLS# 413842, with Bank of the Pacific. Bank of the Pacific is a Member of FDIC and an Equal Housing Lender.
Dave Murnen and Pat Beaty are construction specialists at NeighborWorks® of Grays Harbor County, where Murnen is the executive director. This is a non-profit organization committed to creating safe and affordable housing for all residents of Grays Harbor County.
Do you have questions about home repair, renting, remodeling or becoming a homeowner? Call us at 533-7828, write us or visit us at 710 E. Market St. in Aberdeen.
