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Reverse mortgages beg a lot of questions, and most people need only hear the basic rules to begin a barrage of "what ifs."
 | No question is too silly, too basic, or too embarrassing to ask your counselor and originator. If you need to know something, the best and simplest way to find out is to ask. Speak up and let your confusions, reservations, and concerns be heard. Every question you ask brings you closer to a full understanding of your own economic situation. |
What if I want to move?
This is probably the most often asked question among people considering a reverse mortgage. Consider this: You've signed off on your reverse mortgage and are living happily and comfortably in your home — then one day you start to realize that this is the time in your life when you can finally move to Curaçao and open that banana stand you always dreamed of. Or maybe it's becoming clear that you need a home with fewer stairs and more accessible appliances. Perhaps it's simply time to move on to an assisted-living home where you can take it easy while someone else does the cooking and cleaning for a change. Whatever your reason, you have the right to choose to move out of your home. There are no rules shackling you to your house and you are free to go as you please.
There's just one not-so-small catch. If you decide to move out permanently (or are gone for over a year), even if you don't sell the house, your loan becomes due to the lender. That's payment in full, which is a pretty big check to write. You have several options for paying back a reverse mortgage, the most common of which is selling your home. If you don't wish to sell or your other family members want to keep the house, you have to come up with alternative ways of paying back the loan.
What if only one homeowner is eligible?
Sometimes a couple (or any combination of people living together) hear about reverse mortgages and want to jump right in. It's understandable that you would want to get your hands on that money as quickly as possible. Technically speaking, if at least one person in the household is eligible for a reverse mortgage, that person can go ahead with the loan no matter who else shares the same roof. After all, why should you live without when you can have an instant income flowing from your lender? Actually there's a very good reason not to: It leaves your roomie vulnerable.
In order to qualify for a reverse mortgage, you must be at least 62 and a homeowner with some equity. A couple aged 57 and 65 who own their own home only half qualify — that younger resident has to be removed from the title so the elder could get the loan, which is not a smart move. If the older person decides to press on and get a reverse mortgage anyway, he or she is be the only one who holds the loan, even though the younger can continue to live in the house (reverse mortgages don't pass judgment on living situations). So what's the problem? If that older person dies or moves out of the house and can't be contacted, the younger almost always is responsible for paying off the loan as an heir. That's a big debt to pay — the younger homeowner would probably have to sell the house to pay off the loan, which isn't always a welcome change.
What's more, there's a benefit to waiting for both members of the household to be eligible: The longer you wait, the older you get (wait, the good part is coming); the older you get, the more money lenders lend to you. A difference of five years can mean several thousand dollars!
What if I still owe money on my previous loan?
Because reverse mortgages are based on the equity you've acquired in your home, the more equity you have the higher the loan you can get. It's an abstract concept, but the money you're borrowing is actually already yours: It's a portion of the money you would get if you were to sell your house.
You don't necessarily have to own your home outright in order to qualify for a reverse mortgage, but you do have to be reasonably close. The reason is: Whatever you owe on your home needs to be paid off by your reverse mortgage. Whatever's left is yours to play with. If you owe $5,000 on your home and the lenders have agreed to let you borrow $100,000, that prior debt brings you down to $95,000. Generally, if you owe more than 25 percent on your home, you won't get the full benefits of the reverse mortgage and may want to consider another route if you can.
What If I Sell My House for More than the Loan Amount?
If you have a $75,000 loan and you sell your house for $389,000, you end up with $314,000 left over! Who gets it? Why, you do of course. It's your house, your money, your cash bonanza. If the loan has become due upon your death, your family (or whoever you've named in your will) is entitled to the left over equity.
A lot of fear surrounds reverse mortgages that no matter what you borrow or how much your home is worth, the lender is going to swoop in like a cartoon evildoer and take your home away when the loan is due. Many people fear that if they sell their home for a great price, they may lose it all by handing it over to the lenders. It's simply not true.
What if I want to get out of the loan?
You have a few choices if you simply don't like the structure of the loan and no adjustments can make you happier. Because a reverse mortgage usually comes to an end by the borrower moving out, dying, or not maintaining the house, you only have a few options.
If you've changed your mind within the first three business days after signing the documents, you simply call up your originator and say, "I've changed my mind." This is called a rescission, and it shouldn't be taken lightly — everyone gets cold feet after a big financial decision.
You can also end the loan by paying it off. In most cases, it doesn't take you too long to figure out that this isn't the loan for you. You can liken it to those people who go to a restaurant, eat all but two bites of their meal and then call the waiter over to say "I didn't like it at all." Because most people who change their minds have had their loan for a relatively short period of time, it shouldn't be too hard to pay it back. On the other hand, if you got a lump sum, spent it all in your first four months, and then decided you aren't crazy about reverse mortgages, you may have a harder time paying it all back.
What if a couple has a reverse mortgage and gets divorced?
The short answer is: You each move into a groovy pad and use the money from the sale of the home to pay off the loan in an amiable fashion.
The long answer is a little more complicated. If one person wants to stay in the home and the other (understandably) needs to move out, the loan stays in effect because the rule is that the reverse mortgage is due when the last borrower dies or moves out. Where it gets tricky is actually not our jurisdiction, but it's something to think about. The money from the reverse mortgage may or may not be eligible for alimony, and it can get pretty ugly between "he already used up $10,000 on golf clubs" and "she spent just as much on new furniture." The bottom line is this: If your marriage is on the rocks, don't enter into a loan together. You're just asking for trouble.
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