A question from a daughter wanting to know more about reverse mortgages for her mother.
Question – So this is a real estate question – not for my business but for my family. My mom needs to retire and she can only retire without a mortgage but doesn’t have the money to buy outright. She’s been told she can get a reverse mortgage. My sister has the money to buy and carry a mortgage. Does it make sense for my sis to buy the property so that when my mom can no longer live alone, she will have a property worth something or better to get the reverse mortgage and let the bank have it when mom no longer needs it? I know it’s not great to bet on appreciation. Can someone at least tell me how I would calculate which is the smartest move from a money standpoint?
Answer – Most lenders are doing a HECM reverse mortgage. HECM stands for Home Equity Conversion Mortgage. They are FHA reverse mortgages. The fees are almost identical if you were to take out an FHA mortgage or refinance. The basic qualifications are that a person must be 62 or older, have at least 50 equity or less if the person is older. There is a credit check to see if the person will be able to pay for taxes and insurance and a required education class that must be taken prior.
With a reverse mortgage it opens a lot of options. Monthly payments are optional. A person can make a payment so that interest does not accumulate and eat up equity. But you can make no payment at all also. If there is enough equity, a person can receive monthly payments, take out a lump sum or use the the equity as an equity line of credit, of sort. There are other options also that go into more detail.
The other great thing about a reverse mortgage is that you can make a new purchase. If your current home does not fit your needs or want to down size, you can purchase using a reverse mortgage. The same benefits happen as above. You do need to come in with at least 50% down payment but those numbers decrease the older you are.
Also, a qualifying spouse can remain in the property until they pass or sell or refi.
Yes there are negatives like your equity shrinks, because you are using it and you need to see if this financial tool fits into your financial plans and lifestyle.
It is great to ask questions to know your options.