There may come a time when, after exploring all your real estate options for the future, you decide that you really don’t want to sell your Jersey Shore home and that you’d rather “age in place.” In that case, you should investigate applying for a reverse mortgage, also known as home equity conversion mortgage (HECM). As with any program or plan that is financially based, there are many pros and cons to be considered before you make a final decision.
Eligibility: you must be at least 62 years of age, own your own home (or have a very low balance that can be paid off), and be living in it as your primary residence. Your Jersey Shore home must meet FHA property standards, and you must provide on-going maintenance and pay property taxes, association dues, and insurance. In addition, you must also agree to attend an information counseling session
Amount: Factors used to determine the amount of your eligibility include your age, interest rates, and the value of your home. Most reverse mortgages provide you with a monthly payment. The are online websites that allow you to calculate/estimate the amount. Go to www.AARP.com, www.USAReverseMortgageAdvisor.com, or www.ReverseMortgageGuides.org for assistance.
Advantages: As stated in Gilbert’s Guide, a reverse mortgage includes these advantages:
- Reverse mortgages for seniors can be set up as a monthly payment, line of credit or a lump sum—whatever works best.
- No matter how the reverse mortgage is set up, the home owner does not make any monthly payments.
- No monthly payment is due from the home owner unless he or she dies, moves or sells the home. At that time, the loan is due in full, plus interest and fees.
- The home owner can receive monthly income from a reverse mortgage as long as he or she lives in the home as a primary residence. A home owner could potentially continue to receive monthly payments even after the loan balance is higher than the amount that the house is worth.
- Neither the home owner nor his or her heirs will ever owe more than the home is worth, no matter how many payments are received or how high the interest rates become.
- It’s fairly easy to qualify for this loan since credit scores and income are not part of the qualification process.
Thus, you may convert home equity into available money to meet escalating medical costs, supplement Social Security payments, and make necessary repairs to your Jersey Shore home. Best of all, you can stay in your home and not have to move.
Disadvantages: Gilbert’s Guide also cautions that there are cons involved with reverse mortgages. Some of these include:
- Reverse mortgages for seniors have high closing costs. The senior must pay origination fees that are about double what they are for conventional mortgages and mortgage insurance. The interest rates are adjustable. So, because the set-up costs are expensive, you certainly don’t want a reverse mortgage if you’re going to move in three to five years.
- For seniors who depend on Medicaid or other state or federal programs, it’s important to consider if reverse mortgage payments will affect their eligibility.
The senior is required to attend counseling by an independent HUD counselor prior to receiving a reverse mortgage. These are complex loans and this is a measure of consumer protection, and this point should be high on your reverse mortgage pros and cons checklist.
As with any financial undertaking, you should meet with your real estate agent, your tax advisor, and your attorney during the decision-making process. Discuss the matter with your family members who may be affected by your participation in this program. Talk with other seniors who have a reverse mortgage, and use, either in person or online, knowledgeable sources such as AARP, Fannie Mae, HUD, the Federal Housing Administration and your bank to your advantage.