The kids are all gone, the retirement party has been endured, the house that once sounded like an echo chamber filled with young voices has taken on a tomblike air and, lets face it, the pension plan doesn’t quite equal the salary it has to replace.
Time to downsize, isn’t it?
Well, as a realtor I’d love to put your house on the market and help you find a new one.
But as a person not necessarily wedded to the bottom line I have a question: have you ever considered a reverse mortgage?
What is a reverse mortgage? Simply put, if you’ve spent years buying your home and if you and any other co-owner of your house (your spouse, for example) have reached the age of 62, then you might want to consider the idea of having a lending institution buy it from you bit by bit while you continue to live in it as long as you and/or your spouse are alive.
Why stay in your house? You know the neighbors, and the neighborhood, and the nearby shops, and the house itself which may be empty of children but is filled with memories. You might want to do what some friends of mine do: they dust the upstairs once every couple of weeks and keep it available to board children and grandchildren who come in from out of town. For the rest of the time they live happily in the bottom half of the house, keeping the upstairs minimally warm in the winter and cool in the summer.
Best of all, they’ve never had to MOVE.
How does it work? Your lending institution has a government formula (eight pages of them, so an informant tells me) outlining what you can get with your reverse mortgage. You are guaranteed a monthly payment until your 150th birthday.
Let’s say that over the years you have purchased your house free and clear. Depending on what the house is worth, you can either get a lump sum or a monthly stipend that slowly borrows against the worth of the house. Each month the institution has a higher and higher lien on your house that is only settled when the house is sold (just as the lending institution that holds your current mortgage must have that mortgage paid off if you sell the house).
Thus, before your heirs can realize any funds from the sale of your house after you die or leave it all debts must be satisfied.
But when it comes to encumbering your estate its important to know that the debt is against the house alone, not any other asset you may own. Thus the Rembrandt and the Monet you have hanging on the wall go straight to your heirs.
What are the advantages of a reverse mortgage?
The principal or interest payments are never due until you move, sell the home or pass away.
You never give up your property title.
You can never owe more than the value of the home (if you prove to be a medical miracle and your lifespan threatens to eclipse that of Methuselah the money is guaranteed).
If you die the benefits continue until your spouse’s death.
You can get a reverse mortgage even if you don’t own your house free and clear. The existing mortgage must, of course, be paid off before you can get any monthly benefit but just stopping the mortgage payment may be of inestimable value to your piece of mind.
Since you are shopping a thing (your house) you already own with a value that can be ascertained after all debts against it are paid off your credit rating is not part of the equation, any more than if you were trying to sell a piece of jewelry you own. Since you are borrowing against something you already own the money you get is tax-free.
The following are the basic rules of eligibility to get a reverse loan:
ALL co-owners of a house (usually husband and wife) must be at least 62.
The home must either be debt-free or have a mortgage that can be paid off by the reverse mortgage.
The property must be single-family or a one-to-four unit owner-occupied.
Town homes, detached homes, condominium units and planned unit developments are eligible.
There are all sorts of other things to consider such as taxes and estate planning. This column is not intended to be all-inclusive but just a brief introduction to something you may not have considered.
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