Is a Reverse Mortgage Right for Me?

Your home is your nest egg which can often yield money for your retirement.  But let's face it, a reverse mortgage isn't for everyone.  "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. A Life Estate is acceptable for a reverse mortgage as well as Power of Attorney and Guardianship. But the POA must be durable.

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. 

Can a reverse mortgage be refinanced?

Yes, as long as there is enough equity to refinance and you qualify, you can refinance a reverse mortgage every 12 months. Interest rates going down, getting older, house values going up all determine whether or not there will be equity to do a reverse mortgage refinance.  There is a 5-5 rule that applies to HECM refinances. The increase in the Principal Limit of the loan must be equal to or more than five times the closing costs and proceeds equal to or more than 5% of what is being refinanced.  The new loan must be a benefit to the borrower and cannot take place earlier than 12 months from the time you did your first reverse mortgage.