Leveraging Reverse Mortgages to Support Retirement Goals

Many seniors who own their homes outright are turning to reverse mortgages as a financial resource. Essentially, a reverse mortgage allows homeowners to borrow against their home equity without the need to make monthly repayments, provided they continue living in the house and do not sell it. This enables retirees to tap into their property’s value to fund their retirement plans.

Before opting for a reverse mortgage, homeowners should understand some key points:

If a reverse mortgage is used, it must be the only lien on the property.

Any existing debts against the home must be settled unless prior lienholders agree to subordinate their liens.

The value of the property influences the potential loan amount, with higher-valued homes typically eligible for larger loans.

Older homes may qualify for bigger loans than newer ones, given similar conditions.

Lenders can require repayment if the homeowner:

Secures additional loans on the property.

Declares bankruptcy or is found guilty of fraud.

Adds a new owner to the title.

Abandons the property.

Fails to pay property taxes.

Changes property zoning laws.

Sublets part of the home.

Does not maintain proper insurance coverage.

Neglects property maintenance leading to condemnation.

Here's a summary of how reverse mortgages operate:

Funds are disbursed by the lender to the homeowner as per the agreement.

Mortgage payments are based on a percentage of the home’s appraised value.

Homeowners can sell the house to settle the reverse mortgage if they choose to move out.

In the event of the homeowner’s death, their heirs can sell the property or refinance to retain ownership.

Alternatively, the lender may sell the home to recover the outstanding balance after death or sale.