Since the introduction of the Home Equity Conversion Mortgage in 1989, retirees now have an alternative way of funding their daily expenses and if they qualify for a reverse mortgage, he or she can use the loan proceeds to pay off outstanding loans or finance a home renovation.
The reverse mortgage offers a set of advantages, but in some instances, it might not be the right option just depending on the circumstances. While the program can be very helpful to some, for others it might do more harm than good. We want people to choose the most beneficial decision based on all factors and here to tell you what to be aware of, especially if you are considering a reverse mortgage.
Here are some shocking reasons why the reverse mortgage may not be suitable for you. Check these out and get in touch with any of our loan officers to get more details to determine the best course of action for you.
- You are planning to seek nursing home services soon
- You’d like the surviving spouse to enjoy property ownership rights after you pass away
- You are planning to move soon
- You cannot afford the costs
- You are a beneficiary under the supplemental government program
1. You are planning to seek nursing home services soon
Senior citizens are at risk of developing health problems that require specialized attention. One may be suffering from a condition that requires moving into a nursing home, for specialized care and treatment. This means that you may be living away from your primary residence for an unprecedented period. Remember that the reverse mortgage falls due when the borrower has not lived in the primary residence for 12 months and above. The lender will come demanding repayment, so long as you have been away for over 12 months.
Therefore, seniors who are experiencing medical problems, should rethink the decision to apply for a reverse mortgage. This is because, as the borrower, the reverse mortgage lender expects that you live in your home throughout to ensure the terms remain active.
2. You’d like the surviving spouse to enjoy property ownership rights after you pass away
With the reverse mortgage, what matters most is the name of the borrower. Therefore, in the event the borrower has passed on and their death has been registered, the lenders will initiate demanding the amount owed by the deceased. The usual approach is selling the property to repay the amount that was borrowed.
In that regard, if you pass on without clearing the reverse mortgage payments, your spouse will not have a home. Many people have fallen into this trap, since they know that if they use the name of the older spouse to seek a reverse mortgage, they qualify for more, compared to using the name of the younger spouse.
Expect that the surviving spouse shall be served the notice to repay the loan thirty days after the death announcement. Therefore, if the older spouse was the registered borrower and has passed on, then the surviving spouse risks losing the property unless the loan is paid off.
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3. You are planning to move soon
Senior citizens experience health concerns which make it difficult to live in their current home. They choose senior housing properties where they can live and age in a more supportive and comfortable environment. In most instances, this involves moving out of the primary residence, especially if the cost of renovating the home is too high. By the time someone retires, their children may have already left home and living farther away. They might invite you to live with them. When you are invited to live with your children, it might be hard to turn down that offer, even if you have a reverse mortgage. Remember this is the time when you need them most. Therefore, taking a reverse mortgage when you anticipate moving home may not be a good idea.
4. You cannot afford the costs
Depending on the home equity available, the reverse mortgage proceeds might not be enough to cover the property taxes. Considering you will have property insurance premiums, residence association fees, property taxes and general maintenance cost of the property, to settle. Therefore, if the proceeds do not seem to be enough to cater for these expenses, you are getting yourself into a big trap if you take the reverse mortgage. One of the conditions that you must meet to keep enjoying property ownership rights is paying for the property-related costs that we highlighted herein. Otherwise, the mortgage lending company will demand payment of the amount borrowed in full, since you are in breach of the conditions. Do not take the reverse mortgage, unless you are sure you will be able to afford these property maintenance costs.
5. You are a beneficiary under the supplemental government program
If you are receiving supplemental benefits like Medicaid or supplemental security income, you will have to spend the entirety of the reverse mortgage proceeds immediately after disbursement. Otherwise, any income that you are going to retain at the end of the month affects your eligibility into the government supplemental programs.
The reverse mortgage is not always a bad idea. All you need to do is make the right calculations when applying for a home loan to ensure that you do not fall into a trap you are not going to come out. Therefore, talk to one of our reverse mortgage loan officers so they can help you better assess your situation before you start applying for a reverse mortgage.
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Hi, I'm Parker
Not many mortgage professionals are CPA’s. I bring that extra level of financial expertise to each transaction to ensure you and your family is making the best decision to meet your goals. 👊
Hi, I'm Rex
I’ve been in the mortgage industry since 1978 and love to fly across Arizona in my single engine airplane to help various consumers learn and obtain a reverse mortgage. Give me a call today!