Is A Reverse Mortgage Right For You?

By Daniel O. Tully, The Bristol Press

June 1, 2021

We recently wrote an article about how it may be the right time to make a large gift to your loved ones because of the favorable state and federal estate and gift tax. The same may be true when considering a reverse mortgage.

In the current real estate market in Connecticut, property values continue to grow. In addition, appraisals are coming in higher, meaning that now seniors will be able to get more funds from a reverse mortgage. If you already have a reverse mortgage, you may want to explore refinancing the loan.

Reverse mortgages continue to be one of the most misunderstood retirement and long-term planning tools. Many myths surround the reverse mortgage program. Questions you may have are:

1. Will the bank own my property? NO! You will still be the owner subject to a mortgage.

2. Will the monthly payments be high?NO! There are no monthly payments, only payments you currently pay now, for example: real estate taxes, homeowners insurance, etc.

3. Will the bank get my property and not my family if I die soon after getting the reverse mortgage?NO! The bank will not receive a windfall. The mortgage will have to be paid and the balance will go to your family and/or estate.

Reverse mortgages allow homeowners who are at least 62 years of age to borrow money on their house. The homeowner receives a sum of money from the lender, based largely on the value of the house, the age of the borrower and current interest rates. The loan does not need to be paid back until the last surviving homeowner dies, sells the house, or permanently moves out. Homeowners can use money from a reverse mortgage to pay for improvements to their home, to allow them to delay taking Social Security or to pay for home health care.

The most widely available reverse mortgage product is the Home Equity Conversion Mortgage (HECM), the only reverse mortgage program insured by the Federal Housing Administration (FHA). The national limit on the amount a homeowner can borrow is $822,375.

Seniors with pricier homes have an increased ability to get a jumbo reverse mortgage in order to raise cash for retirement. When the previous housing market improved, jumbo reverse mortgages became popular.

High end borrowers must look to the jumbo reverse mortgage, which imposes no loan limits. Jumbo reverse mortgages allow senior to borrow millions of dollars. Qualified borrowers can borrow up to $4 million in loan proceeds.

Reverse mortgages are “nonrecourse” loans; even if the house eventually sells at a price below the amount of the reverse mortgage, the seller never owes more than the value of the home. How much money seniors can qualify for depends on their age and home value; the older they are, the more they can qualify for.

John Luddy, Senior Vice President of Reverse Lenders at Norcom Mortgage, has noted that one of the more compelling reasons to use a reverse mortgage is to pay for home care in order to stay out of a nursing home. He has also noted that by using a reverse mortgage to pay for home care, hopefully you will not have to dip into your own retirement accounts, potentially jeopardizing your own ability to pay for your future healthcare needs.

A reverse mortgage may not be the right step for everyone. Talk to an Elder Law attorney about whether a reverse mortgage is right for you. A reverse mortgage may be the answer to get you through these difficult times.