The basic age eligibility requirement for a home equity conversion mortgage is that the youngest person on the title must be at least 62 years old. However, if one spouse is under the age of 62, a reverse mortgage may still be possible because there is an exception for the non-borrowing spouse. The borrowers must live in the house as their primary residence and must have equity in their homes. As a general rule, you can obtain about 60% of your home equity. The amount that can be borrowed depends on the house’s value, the borrowers’ ages, and the interest rate.
How Much Does a Reverse Mortgage Cost?
Reverse mortgages are expensive. The reverse mortgage expenses include closing costs, lending fees, and upfront mortgage insurance. These expenses can run as much as 5% of the home’s value. In addition, a reverse mortgage also has ongoing servicing fees.
What If I Plan to Move?
One of the biggest disadvantages of a reverse mortgage is that the mortgage must be fully paid if you ever decide to move. A guaranteed home equity conversion mortgage is a non-recourse mortgage. The borrowers do not have to worry about making up the difference if the house sells for less than the amount owed on the mortgage.
What Options Do My Heirs Have?
When the borrowers die, their heirs have several options depending on whether they want to keep the home, and if what is owed on the mortgage is more or less than the home’s value.
If the heirs want to keep the home and there is sufficient equity in the home, the heirs can pay off the loan and keep the home. A source for the funds to pay off the loan may be by refinancing the reverse mortgage.
If the heirs do not want to keep the house and the amount due on the reverse mortgage is less than the fair market value of the house, then the heirs can sell the house, pay off the reverse mortgage, and pocket the difference.
If the heirs do not want the home, they can transfer the home to the lender or the lender can foreclose on the home. With a home equity conversion mortgage (HECM), there is no personal liability and no additional money that has to be paid.
If the heirs want to keep the house and the mortgage exceeds the home’s value, the heirs can keep the home by paying the lender 95% of The Department of Housing and Urban Development’s (HUD’s) appraised value, minus closing costs and the realtor’s commission.
What Are My Spouse’s Options?
If the surviving spouse is not on the reverse mortgage, then the non-borrowing surviving spouse can remain living in the home as long as the non-borrowing spouse pays the property taxes and homeowner’s insurance and meets the following conditions:
- At the time the mortgage was taken out, the non-borrowing spouse was married to the borrowing spouse
- The marriage must have been disclosed at the time the mortgage was taken out and the non-borrowing spouse must have been named in the loan documents
- The non-borrowing spouse remained married to the borrowing spouse for the remainder of the borrowing spouse’s lifetime
- The non-borrowing spouse remained living in the home
If all of these conditions are met, the non-borrowing spouse has 90 days to establish legal ownership after the borrowing spouse’s death.
Speak to an Experienced Estate Planning Attorney at Our Firm
Our dedicated team of lawyers at Losavio & DeJean, LLC, The Louisiana Elder Law Firm handles a wide range of estate planning and asset protection matters. If you have more questions about whether a reverse mortgage is right for you, then please reach out to our legal team today to discuss your situation. With more than four decades of experience and extensive knowledge of the law, you can feel confident that our law firm will protect your best interests.