Is a Reverse Mortgage Right for Me?

Your home is your nest egg, and your home's equity can often yield money for your retirement.  But let's face it, a reverse mortgage isn't for everyone. You ask the question, "Is a reverse mortgage right for me?"  The following questions can help you ascertain if a reverse mortgage will work for you:

•  Are you looking to stay in your home for the foreseeable future? 

•  Would downsizing to another home make life easier?

•  Would extra money enable you to do the things you want to do?

•  If there are two borrowers and one passes away, would you be able to pay your taxes, homeowner's insurance, and keep up the house in the condition it was when you took out the reverse mortgage?

•  Are there current medical or in-home care situations where a reverse mortgage could help?
•   Would you like to zero out your existing mortgage and pay no further monthly mortgage payments?

If you answered "Yes" to the above questions, perhaps a reverse mortgage might be an option. The following are additional questions borrowers ask about reverse mortgages:

If I choose a line of credit, does the bank pay me interest on the unused portion?
The lender does not pay interest on a reverse mortgage. However, the lender provides a Credit Line Growth rate on your unused line of credit.  This is why a reverse mortgage has a huge advantage over a Home Equity Loan (HELOC).With a HELOC, you have to refinance if you want more money.  The HECM has a growing line of credit based on the current interest on the loan plus an additional 1/2%.  Therefore, there could be more money to access in the future depending on what portion of the line you use. 

Would a "Living Trust" be eligible for a Reverse Mortgage? What about a Life Estate or Guardianship?
A homeowner who has put his or her home in a revocable living trust can take out a reverse mortgage. Documents must be reviewed by an underwriter. In some cases, even irrevocable trusts can be approved but rarely. 

Nothing in the HECM guidelines state you cannot use an irrevocable trust.  However, an irrevocable trust may not qualify for a reverse mortgage if one of the current beneficiaries does not meet HECM guidelines. All current beneficiaries of a trust must be HECM eligible for a HECM. In addition, irrevocable trusts can pose a problem when the trust does not allow invasion of the principle by the "settler", or the donor who created the trust. 

Life estates and reverse mortgages:   A life estate is a legal way to own property that is being passed on to you when the owner of a property dies. The original owner of the property executes a life estate deed and is called the life tenant while the future owners of the property are known as the remaindermen.  It's a type of joint home ownership which is often used to avoid probate upon the passing of the life tenant. Simply put, it makes the transition smoother as the home passes immediately to the heirs at death.  Even though the remaindermen have an ownership in the property, they cannot take possession of the property until the life tenant passes away. Additionally, in a life estate deed, it states all the occupants are allowed to use the property for the duration of their lives. 

But with a a life estate, as the life tenant, you cannot make changes to the house such as doing a refinance or taking out another mortgage without the approval of the remainderman. 

In the case of a reverse mortgage, the lender will review the life estate, and if acceptable, the loan can go forward. Note: The life tenant and the remaindermen must attend reverse mortgage counseling (HECM counseling), sign and date the counseling certificate, and at the closing will all sign the notice of right to cancel the transaction (3 day right of rescission) document as well as the mortgage (not the loan agreement).