seniors don’t qualify for a reverse mortgage, either because
they are not old enough (you must be at least 62), or
because the difference between the value of their home and
the balance of the existing standard mortgage on the home
(their “home equity”) is too small.
Such seniors won’t
waste much time on the effort. Any loan provider they
contact will give them the bad news immediately, since they
don’t want to waste their time on deals that can’t be
is another group of seniors who can qualify for a reverse
mortgage but shouldn’t take one because it is inconsistent
with their other goals. The loan provider may point out the
inconsistency if they become aware of it, but in many cases
the senior won’t bring it up. It is a painful subject
because it involves their own mortality.
are some possible objectives a senior might have that would
be endangered by a reverse mortgage.
You want to pass on a
debt-free house to your estate.
A reverse mortgage builds up
debt and the beneficiaries of your estate must pay it off if
they want the house after you pass on.
You want those now living
with you in your home -- spouse, companion, child -- to be
able to continue to live there after you pass.
If they are not covered by the HECM contract, they must leave the
house after you die.
The rules applicable to non-borrowing spouses (NBS),
however, were modified effective August 4, 2014.
The rules applicable to non-borrowing spouses (NBS), however, were modified effective August 4, 2014.If the surviving NBS assumes ownership of the house and meets other obligations of ownership including payment of property taxes, she can remain there indefinitely. Further, the spouse can be any age when the HECM is taken out, but the younger she is, the less the amount that the HECM borrower can draw.
Under this new rule, all spouses will have their tenure protected. If they are 62 or older, they are co-borrowers, and if they are younger than 62 they are NBSs with protected tenure. But note that the rule does not protect the tenure of dependent children resident in the house, or spouses who marry HECM borrowers after the HECM is taken out.
homeowners who would not endanger their goals might
improve their lives by taking a HECM reverse mortgage. Such
seniors include the following:
Those Whose Incomes Drop on
Retirement While Their Mortgage Payments Continue:
They are retiring, sometimes voluntarily sometimes not,
while they are still paying on a mortgage. Cash drawn under
a HECM reverse mortgage may allow them to pay off the old
mortgage, eliminating the required monthly payment.
Those Retiring Before 65 Who
Want to Wait Until They Are 65 Before Going on Social
social security payment is larger when it is deferred until
age 65. Drawing a term monthly payment under a HECM reverse
mortgage for the period until age 65 can provide a temporary
source of income.
Those Living on Social
Security or Small Pensions Who Want to Supplement Their
Drawing a tenure payment under a HECM reverse mortgage will
give them a specified amount every month as long as they
live in the house.
Those Living in Retirement
on a Nest Egg, or Planning to Do So, Who Are Fearful That
Their Money Might Run Out:
While the rate at which they draw down their assets may be
calculated conservatively to minimize the risk, even a small
probability of running out of money can be a source of
continued anxiety. A HECM
credit line, allowed to grow untouched so long as it is
not needed, provides protection against this hazard.
Those Seeking Protection
Against a Sudden Drop in Their Income.
This could happen from the
termination of a pension following the death of a spouse. It
could also occur from a default by the entity providing the
pension payment. A HECM
credit line would protect against this hazard as well.
Those Who Want to Buy a
House, But Don’t Want a Monthly Payment:
They may want to become
homeowners for the first time, or they may already own a
home and want to move, perhaps to a better climate or to be
closer to family. Whatever the reason, they do not want a
monthly payment and do want to minimize the depletion of
their financial assets. These seniors may raise the funds
required for the purchase by drawing cash under a HECM
Those Seeking an Effective
Way to Manage Fluctuating Incomes.
Seniors with fluctuating
incomes can draw
on a HECM credit line when income drops, then repay the line
when income recovers. The difference between using a HECM
and using a bank deposit is that credit line repayments earn
interest at the mortgage rate rather than the much lower
Those Who Need a Way to Meet
Some seniors have enough
income to meet routine recurring expenses, but have no
financial reserves. A HECM credit line provides such a
Those Planning to Sell Their
Homes Within 3-7 Years or So, But Need to Supplement Their
Income in the Meantime.
They can do this with a HECM
reverse mortgage by drawing a monthly payment over a
Those With Multiple Needs That Require Multiple Payment Options. Many seniors have more than one financial need, which may be met by employing multiple HERCM options. Since larger draws on one option reduce the draws available on other options, the challenge to such seniors is to find the best combination available. The HECM calculator on my web site is designed to make this as easy as possible.