Q: My wife and I own our home and faithfully pay our mortgage and other bills. We retired a few years ago and live on a fixed income. With the rising price of everything, we are getting concerned about making ends meet and are considering a reverse mortgage after seeing a TV commercial. Is this a bad idea? — Kelly
A: The reason there are many different types of mortgages is similar to why a mechanic needs an entire toolbox to fix your car: Not every issue can be resolved using the same tool. Reverse mortgages, or any other type, are neither intrinsically good nor bad — what matters is using the best financial tool for your situation.
In a typical reverse mortgage, a homeowner age 62 or older can receive funds to pay off their current mortgage and supplement their retirement. The loan does not need to be repaid as long as the borrower or their spouse is living in the house.
Once the borrowers no longer reside in the home, whether due to moving out or passing away, the loan must be paid in full or face foreclosure.
The proceeds from the loan are not taxable and generally do not affect your Social Security and Medicare benefits.
Reverse mortgages are “non-recourse,” meaning that the lender can only take back the house in repayment and cannot seek the deficiency from you or your probate estate. This means you will no longer have to make a monthly mortgage payment and can live in your home as long as you want to.
Of course, you will still need to pay your property taxes and hazard insurance.
While reverse mortgages have advantages, they are not for everyone because the up-front costs are high, and the interest eats up your home’s equity.
If you only plan to remain in your home for a short time or want to leave your house to your children, a reverse mortgage may not be the best choice.
Regardless of the type of loan you decide on, carefully review the paperwork before signing, asking questions until you get answers that make sense to you.
Board-certified real estate lawyer Gary Singer writes about industry legal matters and the housing market. To ask him a question, email him at gary@garysingerlaw.com, or go to SunSentinel.com/askpro.
