In addition to this website, we offer a free 35-page Financial Advisor's Guide to Reverse Mortgages and a free 1 hour continuing education class for Certified Financial Planners.
For more information or to receive your Financial Planners Guide, call 1.800.745.0102 or email your request to information@reversemort.com.
As reverse mortgages become more popular, Elder Law Attorneys will receive more questions from former clients and their families, current clients who may be establishing estate plans, and new clients who are already interested in a reverse mortgage but want to ask an attorney questions. By learning more about reverse mortgages, Elder Law Attorneys can more accurately answer any questions and provide superior service to their clients. A Reverse Mortgage Specialist from Retirement Life Funding can work with you and your clients to determine if a reverse mortgage is a good option.
Even though reverse mortgages are an excellent and safe tool for many homeowners, they are not for everyone. In fact, reverse mortgages can be most effective when used as part of a broader financial and estate plan.
The Uses of Reverse Mortgages
Reverse mortgages can be used by homeowners facing a variety of situations, some expected and some unexpected.
Often adult children on behalf of or in collaboration with the homeowner may decide that a reverse mortgage is the best way to remain in the home. Even if the homeowner is disabled or suffers from a mental dysfunction, such as Alzheimer’s or dementia, remaining in the home may be the best option because it prevents the homeowner from being unnecessarily upset or disoriented from moving. A reverse mortgage can be a very useful financial tool to fund home healthcare, home modifications, or simply provide extra funds to help the homeowner remain at home.
The uses of reverse mortgage funds are endless but below are several different situations where a reverse mortgage could be a useful financial tool when used as part of a broader financial plan.
- To supplement retirement income
- To pay for home healthcare expenses
- To pay for unexpected expenses by providing a line of credit
- To make long-term-care or life insurance payments to prevent a policy lapse
- To eliminate current monthly mortgage payments and increase cash flow
- To pay off credit card and other high interest debt
- To modify or improve a home so that your client can continue to live in the home as they age
Living Trusts, Power of Attorneys, and Life Estates
As an Elder Law Attorney, you may have situations where a reverse mortgage may be a useful estate planning tool or a client may need to understand how a reverse mortgage would affect their current estate plan.
In general, a reverse mortgage can be obtained on a property held in a living trust as long as the trust is revocable and provides the right to encumber the property. In addition, the beneficiaries of the trust must be the only reverse mortgage borrowers. Similarly, a reverse mortgage can be obtained on properties held in a life estate or by using a durable power of attorney. Contact us for the specific requirements for trust, life estate, or power of attorney at the time of interest. The guidelines can change depending on the specific program.
For further information, or if you have a specific question, please contact a Reverse Mortgage Specialist at 1.800.745.0102.
The Amount of Funds Available
The amount of money available from a reverse mortgage depends on several factors including the borrower’s age, the value of the home, and interest rates. In general the older the borrower, the higher the value of the home, and the lower the interest rate, the more money your client receives with a reverse mortgage.
Contact your Reverse Mortgage Specialist at 1.800.745.0102 to receive a free, no obligation estimate regarding the specific amount of money available. You can also receive a more general estimate using our free, on-line calculator.
Payout Options
With an adjustable rate reverse mortgage, there are several options available to receive money: a lump sum, line of credit, monthly payments (for life or a specific period of time), or some combination of these options. In addition, a borrower may change how they receive their funds as needed. Overall, after paying off any existing mortgage, most borrowers choose to receive the majority of their funds as a line of credit.
Line of Credit: With the line of credit, the homeowner is able to make withdrawals from their line of credit as needed. In addition, interest is only accrued on the amount that is actually borrowed. No interest accrues on the unused portion of the line of credit. Further, unlike with a conventional home equity line of credit, with a reverse mortgage line of credit the bank cannot close or reduce the funds available. In fact, the line of credit amount available generally increases over time if money is left in the line of credit account.
Lump Sum: A lump sum payment is a large advance provided at the time the loan closes. Most often a lump sum payment is used to pay off an existing mortgage. A lump sum payment is often commonly used to pay immediate expenses such as home repairs or other bills.
Monthly Payments: A monthly advance can be a valuable option for borrowers who know they need additional funds to cover their monthly expenses. These advances can be an amount fixed for a certain amount of time or set for as long as your client lives in their home.
With a fixed rate reverse mortgage, all available funds must be drawn as a lump sum payment at closing.
When the Loan Becomes Due
Unlike a conventional mortgage, which is paid off slowly over time with monthly payments, a reverse mortgage is paid off with one single payment when it becomes due. A reverse mortgage becomes due when:
- All of the borrowers have died. If one borrower passes before the other, there is no change to the terms of the reverse mortgage.
- All of the borrowers have sold or conveyed title to the property and no borrower retains: (i) title in fee simple; (ii) a permitted leasehold interest; (iii) a beneficial interest in a trust holding title; or (iv) a life estate.
- The property is no longer the principal residence of at least one borrower.
- No borrower maintains the property as a principal residence for a period exceeding 12 months because of physical or mental illness.
- The property is in disrepair and the borrower has refused or is unable to fix the property.
- The borrower violates any other covenants of the Security Instruments and has refused or is unable to comply with the violated conditions of the Security Instruments.
Typically, the reverse mortgage is paid off with the proceeds from the sale or refinance of the property. If the home is sold to pay off the reverse mortgage, the borrower or heirs retain all proceeds from the sale once the loan balance is paid. It is important to note that although the heirs may often choose to sell the property to pay off the reverse mortgage loan balance, it is not required. The heirs may instead choose to pay off the loan balance with outside funds or a refinance of the property.
The Benefits of Reverse Mortgages
A reverse mortgage can offer many benefits to your senior clients that can help them remain comfortably in their homes for as long as they choose.
- No monthly mortgage payments required as long as your client lives in their home
- It is safe – A reverse mortgage is insured by the Federal Government
- Your client is protected in case of housing market declines.
- A reverse mortgage is a non-recourse loan.
- Your client has the option to pay some or all of the reverse mortgage balance at any time without penalty
- Your client retains full ownership of their home with all rights and obligations.
